Newer hedge funds may need to adopt more innovative fee structures and reinforce marketing efforts to raise more capital, research has found.
The Alternative Investment Management Association (AIMA), a trade body, and GPP, a prime broker, said emerging hedge fund managers (those with less than $500 million under management) were not yielding to fee pressure but could become more flexible.
The percentage of emerging hedge funds charging a management fee of 2% or more has risen from 14% in 2017, to 22% in 2018.
The proportion charging a performance fee of 20% or more has risen from 35% to 45% over the same timeframe. The researchers said this dispelled “the myth” that competitive pressures and investor demands are pushing hedge fund fees into a downward spiral.
Emerging managers were generally less flexible on management fees than their larger peers. The research shows that 20% of the managers charge 2% or more, versus just 8% of larger managers charging the same fee.
Researchers said this could be because emerging manager may have relied more heavily on this income to support the basic running costs of their business.
The details are in GPP and AIMA’s ‘Making it Big’ report.
Sean Capstick, head of prime brokerage at GPP, said: “The hedge fund industry has enjoyed rude health over the past year with strong performance driving allocator confidence despite a pervasive narrative of investor–driven fee pressure.
“Our research reveals it is still possible to launch a hedge fund and be successful in this climate, but there is a lot more that emerging managers can do to grow [assets under management].”
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