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Hedge Fund Managers reluctant to abandon 2 and 20, but Open to Negotiations

Date: Wednesday, March 3, 2010
Author: HedgeTracker.com

Despite the forecasts and heavy outflows from the hedge fund industry, managers seem to be maintaining their strong grip on the standard “two and twenty” fee structure. The Financial Times reports that a Credit Suisse survey has found that only one in ten hedge funds expect to modify their fee structures to reflect the evolving situation. However, the same survey reports that two-thirds of the respondents would be open to negotiation, cutting fees if investors consent to longer lock-up periods.

MSD Capital has negotiated such an agreement with the launch of the firm’s new distressed debt hedge fund, which mandates a three-year lock-up but reinvests fees over the period. Similarly, Patrick Degorce’s new hedge fund management firm, Theleme Partners, abandoned the two and twenty rule in favor of a proportional management fee that will decrease as the assets grow.
These new fee structures are especially appealing to institutional investors. Pension fund giants Calpers and Hermes BPK are reportedly reviewing the fees for their hedge fund investments.