Making Fees Competitive
At the beginning of this year, many investors stated that they were going to wait until the markets settled before reviewing new hedge fund vehicles. As the months have gone by, however, the fear has somewhat receded, and many investors are evaluating and even allocating to new funds. A number of these investors believe that there is opportunity in this market and want to invest with managers capturing above average returns. A sticking point, however, are management fees.
Some investors have stated they do not want to return to hedge funds because of the high fees. Many more are making it clear to BHA that managers must demonstrate that they can generate the types of returns that merit high fees. Managers often cite positive past returns as a reason for high fees, but with a forecast of uncertain growth, investors are wary. High fees must produce consistently high returns, which many investors don’t think is possible.
Performance is not the only benchmark investors are considering, however. Competition is another. Managers need to be aware of the fees charged by their peers. If other funds are charging less, investors may consider them a more attractive investment.
Today, managers need to analyze and adjust their fee structure not only in terms of performance, but also in terms of their competition and investors’ expectations. Only by doing this will managers be able to position themselves when marketing their investment vehicles and gain the upper hand.