Hedge funds cut fees for investors

The hedge fund industry, infamous for imposing high fees, is finally beginning to cut these charges amid heavy outflows and investor complaints after a year of losses.

Some hedge funds according to Financial Times admitted to cutting their fees for new investors, usually by lowering management fees by half a percentage point to between 1 per cent and 1.5 per cent, and performance fees from 20 per cent to 10 per cent.

A few privileged investors have always been able to gain such favorable terms. However, what makes the current trend striking is that the number of special deals is proliferating fast. The fee cuts started when some funds halted redemptions during the financial crisis. Some managers offered investors fee reductions in exchange for staying in. It could be expected that fees are coming down, and they will continue to come down generally the funds aren’t kicking and screaming too badly, they want more permanent capital. Now, new investors paying the standard 2/20 would be in the minority.

Pension funds, under pressure to regain losses, are also making a push for lower fees. A few months ago, Calpers wrote to the 26 funds managing its $6bn in hedge funds with a list of demands, one of which was a fee cut in the form of a “clawback” on fees if the fund did well after a money-losing year.