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Threshold too low for performance charging

Investment managers say it is the fact that relatively low outperformance can trigger big performance-related fees which make some hedge funds more expensive as most other charges are only slightly higher than long-only funds.

Most managers at Money Marketing’s hedge fund round table meeting acknowledged that hedge funds were slightly pricier than traditional funds but say it is the performance fee that brings the high price tag.

New Star director Ravi Anand said: ” If you look at a typical fund of hedge fund, its pricing is probably 1.5 per cent initial and 1.5 annual management fee, which is not that much higher than a long-only fund of funds. It is a performance fee of, say, 20 per cent that does the damage.”

HSBC alternative investment CEO Barbara Rupf Bee said that performance fees do have their place as they have the important role of aligning the interest of the manager and the investor but there are problems over low boundaries to reach those fees.

She said: “Some of these hurdles are not high enough and the industry has to evolve and managers have to do something about it to highlight the difference between paying for exposure to the best fund managers and greed.”

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