London-based fund monitoring company Fitzrovia International has released a study of hedge fund investor pricing which shows that hedge funds can charge, on average, 80% higher annual fees than actively managed offshore equity funds. Fitzrovia has produced the first analysis of the annual charges for hedge funds - including management fees, Total Expense Ratios (TERs) and performance fees.
TERs of 2.00% (excluding performance fees) rank in the second lowest fee quartile for hedge funds, while management fees of 2.00% rank in the highest quartile. For hedge funds in particular, says Fitzrovia, it is also crucial to examine performance fees, which can range from 5% to 30% of net gains.
"This highlights that clear and transparent information on annual charges
is as essential for hedge funds as it is for other asset classes," comments
Ed Moisson, Associate Director at Fitzrovia.
When all annual fees are taken into account, investors selecting a random hedge
fund in this report could have paid 3.94% a year in all annual fees (over the
latest accounting period). When this average is weighted by fund assets the
figure is reduced to 3.23%, compared to an equivalent figure for equity funds
of 1.79% - a difference of 80%.
At one end of the scale, a small number of hedge funds rely almost totally
on fees generated by performance-related charging structures for management
revenue. At the other end of the scale, a quarter of hedge funds have a TER
of 2.75% or more.
"With growing European regulatory and retail interest in these products,
the spotlight will be turned increasingly on the clarity and comparisons of
fees for alternative investment funds," Ed Moisson adds.
Fitzrovia's TER includes management fees and all other annual operating costs
(such as administration, custody and audit fees), but excludes performance fees,
which are shown separately. The report looks at the TERs of alternative investment
("hedge") funds in five primary offshore fund domiciles - Bermuda,
BVI, Cayman, Dublin, Luxembourg.
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