Stockholm (HedgeNordic) – Hedge fund managers are more inclined to negotiate down their management fees than performance fees, according to eVestment’s State of Institutional Fees Report: Hedge Funds. After comparing the negotiated fees from 180 hedge fund commitments with the stated fees reported in the eVestment platform, the report shows that around 39 percent of funds offered a discount from their stated management fees, but only 11 percent were willing to budge on performance fees.
The State of Institutional Fees Report provides an overview of stated and negotiated fees from a sample of 180 recent hedge fund commitments made by 50 U.S. public pension plans tracked by eVestment. The report finds that the majority of hedge fund managers did not budge from their stated management and performance fees during negotiations with public plans. The size of commitments, however, had an effect on the amount and type of fee discounts hedge fund managers were willing to negotiate. The average commitment amount with discounted fees was twice as large as the average amount of commitments without any change from stated fees.
Managed futures funds offered the lowest negotiated fees for public plans, charging an average management fee of 0.7 percent and 16.4 percent in performance fees. Negotiated fee structures for managed futures vehicles ranged from a 0-and-10 structure to a 2-and-20 setup. Two in every three managed futures funds offered a discount from their stated management fees. Almost two-thirds of funds of hedge funds negotiated down management fees as well, whereas equity-focused and fixed-income-focused hedge funds were least likely to offer discounts on their stated management fees. On average, each strategy group provided a management fee discount to public plans. Some funds that did manage to negotiate higher management fees removed their performance fees entirely.
According to the report, the most common management fees were 1 percent (for managed futures and funds of hedge funds), 1.5 percent (equity and multi-strategy funds) and 2 percent (fixed-income funds). The most common performance fee charged by direct hedge funds was the often-cited industry-standard of 20 percent. The most common performance-based fee for funds of hedge funds was 10 percent.
eVestment’s State of Institutional Fees Report: Hedge Funds can be viewed below: