The new standard for hedge fund fees скачать в хорошем качестве

The new standard for hedge fund fees

"2 and 20" is no longer the standard of the hedge fund industry. The average hedge fund fees have been shrinking. Yet investors are still unhappy with managers' results. The industry is in search of the new standard compensation structure. Perhaps, the problem is not in the fee rates, but rather in investors not getting what they pay for. Management fee is not supposed to be a reimbursement of the hedge fund manager's expenses, it is supposed to be a payment for service. Flat % of AUM (assets under management) should be used to compensate active managers who run commoditized strategies that provide investors with an exposure to a benchmark or a factor or a combination of factors, but not skill-driven alpha. Management fee can be much higher than 2% in case of more complex factor based products. Performance fee (aka incentive fee) - should be used to compensate hedge fund managers who deliver alpha through skill-based active management. Incentive fee as a % of return, however, may create wrong incentives. A manager may want to artificially increase their return by taking excessive risk in order to charge higher fees. The way around it is to compensate the manager based on risk adjusted return. In this case incentive fee rate will be determined as a multiple of Sharpe ratio. The multiple may be lower for emerging funds and higher for established funds where investors compete for access to the limited capacity. 0:00 - "2 and 20" is no longer standard 0:53 - what is a hedge fund and where the twofold fee structure is coming from? 2:10 - the "too high fees" debate started with underperformance 2:47 - the problem is not in the fee rates, but in applying inappropriate fee structures 3:34 - Performance fee aka incentive fee: compensating managers for delivering positive risk-adjusted return 6:29 - Management fee: compensating managers for running commoditized investment strategies 9:08 - not all active managers are created equal and not all of them generate alpha. The key to unlocking the value added by active managers is to apply an appropriate fee structure: Sharpe ratio based incentive fee or AUM based management fee