Hedge funds open to fee cuts to restore investor confidence after 2016 cull
22 March 2017 London
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Hedge funds are slashing fees to woo back investors and recover from significant capital outflows in 2016.
The results of a Preqin survey of 276 hedge fund managers taken in November 2016 and released this week found “fundraising and retaining investor capital [by fund managers] to be significant challenges”.
As a result, three-quarters of those surveyed stated they are willing to reduce their fees, and many intend to spend more on marketing in the year ahead in a bid to overcome investor scepticism about the value of investing in hedge funds, according to Preqin.
The data revealed that 10 percent of respondents are considering cutting performance fees, while 37 percent would reduce their management fees, and 27 percent are open to reducing both.
A further 26 percent said they are not willing to reduce fees at all.
When questioned about key drivers of market change in 2017, performance and investor demands for more favourable fees were cited by 73 percent and 64 percent of fund managers, up from the 33 percent and 28 percent that highlighted these factors as key in 2016.
Almost most half of fund managers said it was harder to raise capital in 2016 compared to 2015, and 36 percent said that it was harder to retain assets.
Amy Bensted, head of hedge fund products at Preqin, said: “Investor dissatisfaction shows no signs of abating in the early part of 2017, and it is clear that addressing investor pressure around performance and fees will be the key challenge for hedge fund managers in the year ahead.”
“Managers will be looking to build on the three-year high returns of 7.3 percent seen in 2016 to restore confidence in the asset class as a whole, revive investor sentiment and begin reversing the trend of outflows from hedge funds.
Bensted continued: “Although investors show high levels of concern about the short-term performance of the industry, hedge funds have proved their worth in the portfolio of institutional investors on a risk-adjusted basis over the long term.”
“Investors have also indicated that they want to see further reductions of hedge fund fees, and it seems as though managers are increasingly looking to provide them. Firms that can generate healthy returns for their investors and meet concerns over fees could truly set themselves apart from their peers in 2017.”
The results of a Preqin survey of 276 hedge fund managers taken in November 2016 and released this week found “fundraising and retaining investor capital [by fund managers] to be significant challenges”.
As a result, three-quarters of those surveyed stated they are willing to reduce their fees, and many intend to spend more on marketing in the year ahead in a bid to overcome investor scepticism about the value of investing in hedge funds, according to Preqin.
The data revealed that 10 percent of respondents are considering cutting performance fees, while 37 percent would reduce their management fees, and 27 percent are open to reducing both.
A further 26 percent said they are not willing to reduce fees at all.
When questioned about key drivers of market change in 2017, performance and investor demands for more favourable fees were cited by 73 percent and 64 percent of fund managers, up from the 33 percent and 28 percent that highlighted these factors as key in 2016.
Almost most half of fund managers said it was harder to raise capital in 2016 compared to 2015, and 36 percent said that it was harder to retain assets.
Amy Bensted, head of hedge fund products at Preqin, said: “Investor dissatisfaction shows no signs of abating in the early part of 2017, and it is clear that addressing investor pressure around performance and fees will be the key challenge for hedge fund managers in the year ahead.”
“Managers will be looking to build on the three-year high returns of 7.3 percent seen in 2016 to restore confidence in the asset class as a whole, revive investor sentiment and begin reversing the trend of outflows from hedge funds.
Bensted continued: “Although investors show high levels of concern about the short-term performance of the industry, hedge funds have proved their worth in the portfolio of institutional investors on a risk-adjusted basis over the long term.”
“Investors have also indicated that they want to see further reductions of hedge fund fees, and it seems as though managers are increasingly looking to provide them. Firms that can generate healthy returns for their investors and meet concerns over fees could truly set themselves apart from their peers in 2017.”
NO FEE, NO RISK
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