Is 2 and 20 Dead?
As of September 2012, the average hedge fund charged 1.6 percent annually in management fees and collected 18.7 percent of any gains, according to data provider Preqin.
It seems like 2-and-20 is no longer the norm, as we see a pretty clear downward trend, espeically in management fees. And things are not looking so hot for 2013 either. 2012 was a pretty bad year for hedge funds. HFRX global index shows 3.25% YTD return as of December 27, compared to 13% for MSCI global index. Surely investors don't want to pay more... for less, so I think on average, fees will continue to decline in the near term.
Here's an article that attempts to explain the "new normal" in hedge funds and the underperformance:
The reality is that thehas morphed into a stodgy group of investors putting up plodding, conservative returns. This is partly because of the growing personal wealth tied up in the funds among the partners. They are more concerned about preserving their own capital than taking outsized bets.
It goes on to predict more fee-cutting in the future.
Besides declining fee, what's the future trend for hedge fund fees? A bifurcation maybe?
- Traditional route: keeping management fee, but shrinking performance fee.
- Old Buffet fee structure: no management fee, but high performance fee above a threshold.
What do you think? Is 2-and-20 a thing of the past?
Happy new year btw!