Hedge fund fees have remained at eye-watering levels, despite less than stellar performance. Why are investors willing to pay so much? Emma Cusworth reports.
“[Hedge fund] returns have been cash-like – pretty close to zero overall. Burying your money in the backyard would have given the same low correlations.”
Bob Maynard, Public Employee Retirement System of Idaho
Recent months have seen a great deal of analysis and opinion centred on what senior executives of large corporates have been earning. And fair enough; some of the numbers have been exorbitant. However, corporate CEOs are not the only ones enjoying more than their fair share of profits (or lack thereof).
Hedge funds continue to rake in huge amounts in management and performance fees, but we don’t see institutional investors publically rebelling against them on the same scale. Is that because hedge funds take a more equitable approach to how they divvy up the spoils of their investment edge?
Not really. Andrew Beer, managing partner at Beachhead Capital Management says fees ate up 80% of alpha over the last decade. “Investors take the risks,” he says, “but the managers get all the reward. The fee structures are broken.”
