13 Oct 2011
A study by Preqin shows that 11% of institutional hedge fund investors have stated that returns on their investments have exceeded expectations in the past 12 months. The proportion of investors that believe returns have exceeded, or been in line with, expectations has fallen by 11% to 60% since 2010. This is the lowest proportion in the past four years.
Hedge Fund Returns: The Past Four Years
19% of investors felt that returns had exceeded their expectations in 2010, compared to 11% in 2011 and 9% in 2008.
The proportion of investors that feel returns have fallen below expectations in 2011, 40%, is the highest in the past four years.
28% of investors felt that returns failed to meet their expectations in 2010.
Returns reached or exceeded the expectations of 73% of investors in 2009 - the highest proportion in the past four years.
35% of investors feel that terms and conditions have shifted in their favour over the past 12 months. In 2010 the figure stood at 65%.
65% have seen no change in fund terms and conditions in the last year
46% have attempted to negotiate lower fees in 2011 compared to 48% in 2010.
Investors are now less likely to reject a fund based on fee structure than they were last year; 47% surveyed this year said they had done so in the past 12 months compared to 65% in 2010.
One-third of investors said that managers are prepared to charge lower fees in return for longer lock-up periods.
Single-Manager Hedge Fund Fees
29% of managers now use the traditional 2/20 fee structure.
The mean management fee is 1.6% and the mean performance fee is 19.2%.
79% of managers charge a 20% performance fee.
40% of managers charge a 2% management fee.
Asia and Rest of World-based fund managers charge the lowest average management and performance fees.
Hedge Fund Returns: The Past Four Years
19% of investors felt that returns had exceeded their expectations in 2010, compared to 11% in 2011 and 9% in 2008.
The proportion of investors that feel returns have fallen below expectations in 2011, 40%, is the highest in the past four years.
28% of investors felt that returns failed to meet their expectations in 2010.
Returns reached or exceeded the expectations of 73% of investors in 2009 - the highest proportion in the past four years.
35% of investors feel that terms and conditions have shifted in their favour over the past 12 months. In 2010 the figure stood at 65%.
65% have seen no change in fund terms and conditions in the last year
46% have attempted to negotiate lower fees in 2011 compared to 48% in 2010.
Investors are now less likely to reject a fund based on fee structure than they were last year; 47% surveyed this year said they had done so in the past 12 months compared to 65% in 2010.
One-third of investors said that managers are prepared to charge lower fees in return for longer lock-up periods.
Single-Manager Hedge Fund Fees
29% of managers now use the traditional 2/20 fee structure.
The mean management fee is 1.6% and the mean performance fee is 19.2%.
79% of managers charge a 20% performance fee.
40% of managers charge a 2% management fee.
Asia and Rest of World-based fund managers charge the lowest average management and performance fees.
“Changes to the hedge fund industry are likely to continue apace as cautious institutional investors seek the best possible fund terms from their fund managers,” said Amy Benstead, manager of hedge fund data. “Fees are of great importance to investors, and it is probable that managers will carry on moving away from the 2&20 structure. Dissatisfaction with hedge fund performance will be of concern to the industry and managers will have to listen to their clients to ensure that they keep them on side. If managers continue to respond to demands from institutional investors, positive inflows will remain in the industry, with the managers best able to adapt to the demands of investors reaping the largest rewards.”
