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UK Telegraph: Hedge Funds Face Reduced Performance Fees

Narayan Naik, the director of the London Business School's Hedge Fund Centre, suggests that hedge fund managers face slashed performance fees as the hedge fund sector loses invested capital and investors. As the article Overcrowding set to force hedge fund fees to tumble by Melanie Feisst in The Telegraph of London states “overcrowding was putting increasing ‘downward pressure’ on the fees and new funds entering the market would find it particularly difficult to raise them.”

Dr. Naik continued “There are too many managers chasing too few opportunities using very similar modelling techniques. Some funds will offer lower fees to ensure their after-fee return is higher. The pressure is exaggerated by institutional investors coming in and they like to strike good value.” The BNP Paribas-sponsored centre's research has shown that between 60pc and 70pc of the world's estimated 8,000 hedge funds charge 20pc performance fees on returns above pre-determined highwater, or benchmark, levels on top of a 2pc flat management fee. "If there's too many people chasing the same strategies, the rate of return drops quickly," said Dr Naik. "Those hedge fund managers with the skill and experience may continue to do well, but new players coming in will find it much harder, and some of the existing guys will be forced to close."