28 Aug 2017 Hedge funds start responding to investors’ concerns by adopting new fee structures
Most hedge funds employ a 2-and-20 fee structure (2% management fee, 20% performance fee). Over the last decade or so, many investors have raised questions over this fee structure and argue that it encourages fund managers to increase their AUMs rather than generate alpha.
The hedge fund industry finally appears to be responding to investors’ concern by adopting new fee structures. Some of the hedge funds have switched to 1-and-30 fee structure, while others have adopted a sliding-scale fee structure, in which the management fee decreases as the assets under management increase. Many funds also adopted multi-year incentive structure, in which the management and performance fees vary over the holding period.