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Hedge fund managers ready to compromise -- survey

Date: Tuesday, November 10, 2009
Author: Reuters.com

Hedge fund managers say they are ready to compromise on fees and how fast they will return their clients' money, suggesting that last year's financial crisis has forced the secretive industry to open up in a hurry.

According to a survey published by accounting and consulting firm Ernst & Young on Monday, 40 percent of hedge funds have adjusted their redemption and liquidity terms and another 7 percent plan to do so.

Of the 100 hedge funds that Greenwich Associates polled for the accounting firm in August and September, 27 percent said they have adjusted their fees and fee structures and another 11 percent plan to do so, the report found.

Hedge funds, which charge both a management fee and and a performance fee that can often total 20 percent of the profits they make, said they are willing to adjust the management fee.

Roughly one third of the hedge funds in the United States and Europe said they had or would cut these fees to help attract new investors. They were less willing to budge on the incentive or performance fees with only 4 percent of U.S.-based managers saying they would cut these.

"There is a gradual understanding that large investors really are serious about transparency," said Henry Bregstein, co-managing partner of law firm Katten Muchin Rosenman LLP's New York office. "Hedge fund managers think this is real."

The survey illustrates deep changes in the $1.5 trillion industry after angry investors pulled about $800 billion out of hedge funds in the year ended on July 30, according to data from Hedge Fund Research. To stem last year's rising tide of redemptions, many hedge fund managers prevented investors from leaving by putting up so-galled gates, which angered their clients even more.

The survey also showed that hedge fund managers think their clients' demand for better transparency relates mainly to trying to better understand the risk of what these managers do.

More than half of the managers surveyed -- 61 percent -- said they inform their investors about returns once a month with one third saying they keep their clients informed on a weekly basis. Only 9 percent of the polled fund managers offer investors daily information.

On average hedge funds rely on four prime brokers to provide them with financing, to clear trades and sometimes to introduce them to investors. One third of those polled said they increased the number of prime brokers they use. (Reporting by Svea Herbst-Bayliss; editing by Andre Grenon)