Hedge fund managers are moving away from the standard so-called two and 20 fee structure, and placing greater emphasis on customised fees in order to develop collaborative partnerships with clients, according to new survey findings.
In the two and 20 model, hedge fund managers charge a 2% annual management fee on assets under management (AUM) regardless of how the investments perform, and a 20% performance fee on profits.
The survey found that this “is no longer the standard structure charged by the hedge fund industry”, and that 80% of managers would lower management fees in return for higher performance fees, according to the Alternative Investment Management Association (AIMA).
“As fund managers and investors focus on customisation and deeper partnership to align interests, attention is no longer solely on fees,” the international industry group says in a statement on July 10.
AIMA and audit and consulting network RSM polled 118 global hedge fund managers in the first quarter, representing around US$440 billion of AUM.
It found that hedge funds are now charging an average management fee of 1.3% of AUM and 1.4% for new funds launched in the past 12 months, and look for a 33% performance fee.
Nearly all the respondents have a high-water mark – the highest value ever reached by the hedge fund – to charge the performance fee. Almost 40% use hurdle rates, or a minimum rate of return for clients, before charging performance fees.
According to AIMA Chief Executive Officer Jack Inglis, hedge fund managers are being more responsive to investors’ requirements.
“No longer are the interests of investors and managers aligned solely through fee arrangements. A collaborative partnership, based on clear communication, has enabled the customised, solutions-based approach that investors want from the modern hedge fund managers,” Mr. Inglis says in the statement.
AIMA has 2,000 members managing over $2 trillion of hedge fund and private credit assets in more than 60 countries.