F I N A N C E
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Edited by
Pat Regnier○ Money managers are trying
to offer better deals after years
of mediocre performanceHedge fund fees had already been shrinking before
the coronavirus pandemic ripped through global
markets. Now they’re in terminal decline.
Long notorious for charging high fees, the $3 tril-
lion industry runs portfolios generally open only to
institutions and affluent individuals. Now it’s going
to extraordinary lengths to attract new money as the
pandemic triggers losses and accelerates an investor
exodus. Many of the world’s most prominent manag-
ers have come to the stark realization that they need
to upend the “2-and-20” fee model—that is, a 2%
annual fee, plus a performance fee of 20% of profits—
if they want to expand. For some smaller firms, the
goal isn’t growth. It’s survival.
“The hedge fund industry is littered with the car-
casses of small funds that never reached scale,” says
Andrew Beer, founder of New York-based Dynamic
Beta Investments, whose firm seeks to outperform
hedge funds with lower costs. “Fees in the industry
are still twice what they should be.”
Clients pulled more than $55 billion from hedgefunds in the first half of 2020, the most in at least
a decade, according to data tracker EVestment.
Hundreds of firms shuttered in the first quarter, the
fastest pace in more than four years. And the num-
ber of new launches slumped to near record lows.
Against this backdrop, some managers are
signaling they’re ready to waive fixed fees altogether.
Selwood Asset Management, a $3.5 billion London-
based hedge fund run by Sofiane Gharred, invited
some new clients to invest without paying a perfor-
mance fee until the fund hits a threshold known as
the high-water mark (or the previous peak level in
value). Selwood typically charges performance fees
ranging from 13.5% to 30% for its main fund.
Meanwhile, Hayman Capital Management’s Kyle
Bass has proposed charging the traditional 20%
incentive fee for his new fund only if the net return
exceeds 100%. He’s also offering to forgo annual
management fees after an upfront 2% fee to cover
initial costs. The catch is that investors need to stick
with his bet on the collapse of the Hong Kong dol-
lar for two years.
Paul Singer’s Elliott Management Corp., which
has been in business for 43 years, is offering some
clients lower fees if they’ll agree to lock up capital
for longer. And Tony Chin, chief executive officer
of Hong Kong-based Infini Capital Management, isBloomberg Businessweek Au t 3t , 2 020