Hedge funds’ next fee challenge: skimming the consumer surplus
Jul 2nd, 2007 | Filed under: Investment Management Fees
Some said it was bound to happen. P&I now reports that hedge fund fees are heading down - at least for funds of funds (but only for hard-bargaining institutional investors). It may not be the wholesale revolt than many have been expecting, but the evidence is apparently mounting. Says P&I:
“Lately, institutional investors with allocations larger than $100 million are much more likely to pay a hedge fund-of-fund management fee in the range of 75 to 80 basis points, although it often requires intense negotiation to push managers into discounting their fee.”
But P&I also cites sources that tell them the story is different for single-managers.
“Hedge funds of funds are being squeezed by public plans that are much more price sensitive. They realize that they need to be really big in order to keep the business scaleable, but because of this, they arenot losing out because of lower fees.”
“We are extremely sensitive to fees and made that clear during the search process. Because the performance differential among hedge funds of funds is very small between hedge funds of funds, every basis point of cost really counts. Price didn’t rule anybody out of this search, but it made a difference, said Mr. Lamar Villere (of the Illinois Teachers’ Retirement System).”
“In what CRA RogersCasey’s Mr. Lynch calls a shootout for capital, pricing is becoming the main distinguishing factor.”
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