Hedge Fund Fees Fall
Wednesday, May 05, 2010

Hedge fund fees have fallen considerably since the onset of the financial crisis as funds scrabble to attract new investors, according to new research.

The report, published last month by Preqin, was based on a survey conducted in the second and fourth quarters of 2009, and showed that fees for single manager funds are, on average, considerably lower than the perceived industry standard of 2%.

According to the report, the mean management fee is 1.65%, with the median at 1.5%, suggesting that an increasing number of funds are charging below the standard 2% management fee. The mean management fee for funds of hedge funds is 1.44% and the mean performance fee is 11.54%, almost half the 20% industry standard performance fee for single managers funds.

"Many managers have lowered their management fees in order to attract investors following the market crisis," states the report. "The market crisis changed the fund raising environment, and as a result, the traditional '2&20' fee structure has become less common. Today just 38% of single manager hedge funds charge '2&20'."

"Hedge fund managers are becoming more flexible with their fee structures by either charging lower management or performance fees or reducing both in an attempt to attract investors and retain a competitive advantage," the report observes.

The research also highlighted differences in fee levels depending on geographical location, with North American funds typically charging the highest management fees, at 1.72%, and Asian funds the lowest, at 1.51%. The average performance fee charged by North American managers is 19.12%, while Asian managers charge an average 19.32%.

European managers charge a similar level of management fees (1.59%) but average performance fees in this region are the lowest compared to other regions, at 18.23%.