Hedge Fund Fees Remain Intact, Report Finds

Date: Friday, September 25, 2009
Author: New York Times

Investors who expected hedge funds to prune fees after a particularly disastrous showing in 2008 may be disappointed by a recent study.

The Wall Street Journal reported that a study compiled by the French fund-of-hedge-funds firm Olympia Capital Management found that for the most part, fees remained steady at the 2,659 funds it analyzed. It also found that only a handful of the firms had shortened the time between one redemption date to the next, or reduced the initial lockup period they place on investors’ capital.

Last year, the average fund lost nearly 19 percent, and investors flooded firms with withdrawal requests. More than $600 billion has been pulled from hedge funds since the peak of the credit boom, leaving the industry to oversee just $1.3 trillion, according to Hedge Fund Research.

“Industry analysts expected the level of fees to decrease in order to reflect both the strong decrease in the demand for hedge funds and their disappointing performance,” Guido Bolliger, chief investment officer at Olympia Capital Management, told The Journal. But “we have not seen any significant changes in the liquidity terms and the fees taken by hedge funds during the first half of 2009,” he said.

DealBook’s Zachery Kouwe noted recently that many clients who had long countenanced the hefty fees required by hedge funds so long as they garnered outsize returns were getting antsy.

Some big hedge fund investors, including pension funds and endowments, are beginning to call for reduced fees, though many still fear reprisal from successful managers if they criticize too harshly. These investors, who have long tried to push for smaller fees with little success, are now starting to flex their muscles, according to a June study from Barclays Capital.