Hedge funds across globe
cut fees in battle for investors
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[September 15, 2016]
By Simon Jessop and Lawrence Delevingne
LONDON/NEW YORK (Reuters) - Hedge funds
across the globe are cutting their management fees as they struggle
to attract investors in the face of weak returns, industry data
shows.
U.S.-based Caxton Associates this week became the latest firm to
tell investors it would reduce its fees, joining the likes of Och-Ziff
Capital Management and Tudor Investment Corp which have also cut
charges this year.
These recent, high-profile examples are not isolated cases though,
and reflect a wider global trend in place for several years, data
compiled from more than 2,600 funds in Europe, the Americas and Asia
shows.
The average annual management fee charged by these funds has fallen
to 1.39 percent of the value of a client's assets, from 1.44 in 2015
and 1.68 about a decade ago, according to the data from industry
monitor Eurekahedge.
The move by Caxton and its peers to cut fees this year coincides
with a sharp slowdown in the growth of assets under management. The
hedge funds in the Eurekahedge data have added a total of just $14.7
billion so far this year, compared with $108.7 billion in 2015 as a
whole and $343 billion in 2007.
The figures illustrate how many funds are struggling to prove their
worth and how the balance of power is increasingly tilting from
managers towards investors.
"There isn't a manager out there who isn't thinking about lowering
fees," David Saunders, Chief Executive Officer of K2 Advisors -
which has about $10 billion invested with hedge funds on behalf of
its clients - told Reuters on the sidelines of the Alpha Hedge West
conference in San Francisco last week.
The industry's average return on investment so far this year is up
slightly from the 2015 average, to 2.6 percent, but is still a far
cry from the returns of more than 13 percent recorded a decade ago,
the data showed.
Hedge funds were traditionally known for a '2 and 20' fee model
before the financial crisis - an annual management fee of 2 percent
plus a 20 percent cut of any profits. But those days have gone for
most funds which, like others across the financial industry, have
seen returns hit by the impact of low interest rates.
Funds have also cut performance fees, from an average of 18.77
percent across the global industry in 2007 to 16.69 percent today,
said Eurekahedge, an independent research firm which provides
databases for funds and investors.
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WORLD'S WEALTHY
Caxton wrote to investors on Tuesday to say it was cutting fees from the
beginning of next year, on a sliding scale depending on how much money a client
had invested with them.
It came weeks after directors of BlackRock's <BLK.N> UK Emerging Companies Hedge
Fund said in a stock exchange filing that they had reduced the fee payable on
its institutional share class to 1 percent from 1.75 percent.
Others to cut management fees this year include $39 billion U.S.-based fund firm
Och-Ziff Capital Management, which cut fees in its multi-strategy funds by 25
basis points for existing clients, a source with knowledge of the matter said
Tudor Investment Corp, which has $11.6 billion of assets under management,
lowered the 2.75 percent management fee and a 27 percent performance fees on its
flagship Tudor BVI fund to two separate lower-fee classes, said a source with
knowledge of the matter: to 2 percent and 25 percent for institutions, and 2.25
percent and 25 percent for other investors.
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In a sign of the struggle the industry faces to attract and retain money,
several big pension schemes, most recently New Jersey's state pension fund, have
flagged plans to scale back investments in hedge funds. The world's wealthy
individuals and families - the other big capital pool for funds - are also
showing signs of frustration.
The average proportion of total investments allocated to hedge funds by "family
offices" - firms that oversee the investments of wealthy families - fell 0.9
percent in 2015 and was likely to fall further, a survey of 242 family offices
by Campden Wealth and UBS published this month showed.
"A lot of people invested in hedge funds ... and they've all been rather
disappointed about the performance," said Oliver Muggli, partner at multi-family
office Mandorit, which advises on investments of more than 1.5 billion euros.
"It's an asset class which probably will face more challenge and more outflows
in the next one or two years."
(Additional reporting by Maiya Keidan; Graphic by Michael Ovaska and Gustavo
Cabrera; Editing by John O'Donnell and Pravin Char)
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