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Pension funds tell hedge funds to drop fees

Date: Tuesday, February 9, 2010
Author: Helia Ebrahimi, Telegraph

Pension funds will fight to force down fees paid to hedge funds following 2008ís $5bn (£3.2bn) exodus after the financial crisis left hedge funds struggling to win investors back.
Last year thanks to its best performance in a decade, the hedge fund industry grew to $1.6 trillion from $1.4 trillion at the end of 2008. But almost half European and Canadian pension funds that negotiated lower fees in 2009 expect charges to drop further in 2010, a survey from industry consultant bFinance shows.

The results reveal that in 2009 28pc of pension funds brought management fees lower, with 19pc also paying less in performance fees. Now, 40pc warn they expected performance fees to go down by 25pc this year with base fees also continuing to fall.

Hedge funds have traditionally charged annual management fees of 2pc, plus performance or incentive fees.

But many have been battling client anger over excessive charges, which has pushed the average annual fee down to 1.63pc. Last year just 31pc of hedge funds were in a position to collect performance fees because they hadnít fully recouped investment losses in the financial crisis.

Hermes Fund Managers, the UKís largest pension fund with £21bn under management, mostly from the BT pension scheme, recently announced it would allow all its investors to claw back performance fees.