MIGHT two-and-twenty become one-and-ten? Since 1990 the number of hedge funds has grown by 14 times to over 7,000, but abundance has not lowered prices. Funds typically still charge clients a management fee of 2% of assets and 20% of any profits above a given hurdle. Rough calculations suggest that in the boom year of 2007, hedge funds globally received $33 billion in management fees alone—roughly equivalent to the bonus pool paid by Wall Street’s securities industry.
That may now be changing. The average hedge fund lost 18% during 2008, according to Hedge Fund Research, an analysis firm. Assets fell by a quarter, reflecting both losses and client redemptions, which are expected to accelerate. To prevent fire sales, perhaps a third of funds have restricted client withdrawals. Giving clients temporary fee cuts has helped sweeten this pill.