Negotiated Versus Stated Hedge Fund FeesGuest Post
eVestment’s Market Lens solution contains thousands of documents with information on the actual fees public plan investors have negotiated with their traditional and alternatives asset managers. This report provides an overview of the negotiated fees from a sample of 180 hedge fund commitments made by 50 U.S. public plans, and also compares these negotiated fees to the stated fees managers have reported into the eVestment platform.
For both hedge fund managers and institutional investors in these products, having an understanding of where fee negotiations tend to start and tend to finish is important to reaching an agreement which ultimately benefits both parties.
Key Points from Negotiated vs. Stated Fees
- Hedge fund managers are more likely to negotiate down their management fees than their performance fees.
- Discounts from stated fees were generally negotiated on larger commitments amounts.
- Two-thirds of managed futures funds offered a discount from their stated management fees.
- Fixed income-focused and equity-focused hedge funds were least likely to veer from their stated management fees.
Highlights from All Negotiated Fees
- The most common negotiated management fees were 1% (for managed futures and funds of hedge funds), 1.5% (equity and multi-strategy), and 2% (fixed income). Event driven/distressed and macro funds charged 1.5% and 2% with the same frequency. The most common agreed upon performance fee among all direct hedge funds was the oft referenced 20%; for funds of hedge funds it was 10%.
- Managed futures funds offered the lowest negotiated fees for public plans among direct hedge fund strategies shown below, charging an average 0.7% in management and 16.4% in performance fees. Negotiated fees for managed futures strategies ranged from a 0-and-10 structure (a levered systematic index-tracker) to a 2-and-20 setup (algorithmic frontier markets-focused fund).
Negotiated Vs. Stated Fees
The negotiated versus stated fee information is based on a 1-to-1 match between the hedge funds in public plan documents and those on the eVestment platform.
Hedge fund managers more likely to negotiate down their management fees than performance fees. 38.8% of commitments in the sample below show a discounted management fee, while only 11.3% show a discounted performance fee. However, the majority of managers still did not budge from their stated fees during negotiations with public plans.
Discounts negotiated on larger commitments. The average commitment amount with discounted fees was over 2x larger than that of commitments without any change from their stated fees. USD 119 MM was the average commitment size with a management fee discount and USD 133 MM with a performance fee reduction; USD 52 MM was the average commitment size showing no change in management fees and USD 55 MM showing no change for performance fees.
Article by eVestment