Hedgies are abandoning a lucrative fees model that has been coming under increasing fire from investors and politicians.
Results from a new survey have found that the ‘2 and 20’ fee model – a fixed two per cent management fee and a 20 per cent performance fee – is no longer being used by hedge funds as the standard payment structure.
The controversial fee arrangement provoked opposition from investors, who have been putting pressure on private equity mangers to provide better value for money by slashing their fees and improving their performances.
According to the Alternative Investment Management Association (Aima), hedge fund managers are now reporting a new average management fee of 1.3 per cent of assets under management (AUM) and 1.4 per cent for new funds launched in the past 12 months.
“Hedge fund managers are being responsive to investor requirements. The results of our survey reflect an ability to partner with investors to deliver the investment solutions they need on mutually agreed terms,” said Jack Inglis, chief executive of Aima.
Inglis added: “No longer are the interests of investors and managers aligned solely through fee arrangements. A collaborative partnership, based on clear communication, has enabled the customised, solutions-based approach that investors want from the modern hedge fund manager.”
The report, which surveyed 118 hedge fund managers representing approximately $440bn in AUM, also found that some 40 per cent said they used hurdle rates to set a minimum return for their customers before a performance fee was charged.