HF managers will negotiate management fees, but less so performance fees - eVestment data shows

Jonathan Boyd
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Research by eVestment into the attitude of hedge fund managers towards negotiating lower management and performance fees has found that there is a significant difference in the proporation willing to do so on the former versus the latter.

In its State of Institutional Fees Report:Hedge Funds, eVestment notes that some 38.8% of the hedge funds covered by the research were willing to negotiate their management fee, but just 11.3% woudl negotiate the performance fee.

It also found that the size of an investment made into a hedge fund would impact the amount and type of fee discunts the hedge fund managers were willing to negotiate. The findings were based on looking at some 180 hedge fund commitments made by 50 US public pensoin plans, tracked by eVestment Market Lens.

Other key points identified by the research include:

  • The most common management fees were 1% (for managed futures and funds of hedge funds), 1.5% (equity and multi-strategy funds) and 2% (fixed income funds). Event driven/distressed and macro funds charged 1.5% and 2% with the same frequency. The most common agreed upon performance fee among all direct hedge funds was the oft referenced 20%; for funds of hedge funds it was 10%.
  • Managed futures funds offered the lowest negotiated fees for public plans among direct hedge fund strategies, charging an average 0.7% in management and 16.4% in performance fees. Negotiated fees for managed futures strategies ranged from a 0-and-10 structure (a levered systematic index-tracker) to a 2-and-20 setup (algorithmic frontier markets-focused fund).
  • The average commitment amount with discounted fees was over 2x larger than that of commitments without any change from their stated fees. $119m was the average commitment size with a management fee discount and $133m was the average commitment size with a performance fee reduction; $52m was the average commitment size showing no change in management fees and $55m showing no change for performance fees.

Jonathan Boyd
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Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.