Hedge funds suffer management fee blues
Less than a fifth of all hedge funds launched this year have been able to charge investors the standard 2% management fee, according to new research that comes as the industry faces up to the prospect of life without the lucrative “two and 20” model.
Only 13% of funds set-up this year have asked clients to pay a 2% fixed fee for managing assets, according to a report from Morgan Stanley’s prime brokerage division entitled ‘Out-perform and under-deliver’.
This is a large drop on the figure from last year, when about half of all funds launched were able to charge the 2% levy. Between 2005 and 2006, 56% applied the fee. Morgan Stanley said: “New funds are making do with less.”
The average fixed management fee being charged by the industry this year is 1.8%, according to analysis of data from one investor by Financial News. The data covers about 3100 share classes in various hedge funds.
The research, published by Morgan Stanley on Friday, came at the end of a week when publisher Hedgefund.net found that the investments of more than half of all hedge funds were worth less now than they were at the start of last year – meaning these funds are still unable to charge existing investors with performance fees.
This fact supported a finding last month, made by researchers Preqin, that a 2% management fee coupled with a 20% charge on profits - which magazine Fortune said back in 1970 was the reason "why so many money managers have been inspired to start hedge funds" - was no longer sustainable.
Christopher Miller, chief executive of fund ratings agency Allenbridge HedgeInfo, said: "The performance fee issue arouses more concern, yet that is the component of the fee structure which actually aligns the interests of the manager with the client."
--write to dwalker@efinancialnews.com
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