Last week, Peter Douglas wrote on this website that growing competition in the hedge fund industry would lead to what he called “fee differentiation”:

“Investors will be in control, given the new scarcity of investment capital. 2&20 may be the sticker price, tho’ some new funds may go for a more conciliatory 1 & 20, but the effective pricing of investment strategies is likely to disperse dramatically, through the use of separate accounts, co-investment rights, and advisory contracts, as well as through simple fee rebates.”

Douglas is suggesting that the industry will move beyond the one dimensional view of compensation (low to high) and begin to trade off certain aspects of fees with other factors such as co-investment rights.

Last weekend, the FT quoted a hedge fund administrator who seemed to share Douglas’ view.  John McCann of Trinity Fund Administrators told the paper:

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