25/01/2012 Author: Tony Griffiths

Investors drive hedge fund fee concessions

Investor pressure on hedge fund fees is leading an increasing number of managers to make concessions on the way they structure their remuneration policies.    

This week, $2.3bn fund of hedge funds firm Hermes BPK launched a new $275m CTA managed accounts structure, Alpha Vault Managed Futures, and, according to CEO Matteo Perruccio, all five of the programme’s underlying CTA managers agreed to stretch out performance fee crystallisation from a quarterly to either an annual or bi-annual interval.

In addition, Hermes, which in 2011 began offering a fee structure that staggers some of its own performance fees over three years, has had success requesting similar concessions from its entire universe of underlying managers, Perruccio said, with about 40% making “practical changes”.

“Our efforts are less about getting managers to reduce their fees, and more about an alignment of interest with investors in regards to fee structures,” he added.

Investment consultant Towers Watson told HFMWeek it was seeing more institutional investors looking at the way hedge fund fees are generated and decomposing alpha. “We spoke to several investor groups in Asia that have been doing a lot of work on the subject,” said Damien Loveday, global head of hedge fund manager research.

Some managers have set up their management fee to be ratcheted down as assets go up, Loveday added. “We’ve seen a few manager groups globally doing that over the last 12-18 months.”