Hedge fund fees to stay high despite pressure
Wednesday, October 10, 2007 : PermalinkReuters- Hedge funds’ hefty fees are likely to remain high even as institutional investors try to chip away at them for their clients, a top Bank of America executive said on Tuesday.
“It would be an overstatement to say there is a threat to the (hedge funds’) fee structure,” Brian Moynihan, president of Bank of America’s Global Wealth and Investment Management Division, told the Reuters Wealth Management Summit in Boston. But “there will be constant downward pressure overall,” he added.
Hedge funds, unlike mutual funds, traditionally charge a performance fee which is usually about 20 percent of the gains a manager makes. They also charge a management fee of about 2 percent. At some of the industry’s most exclusive hedge funds, the performance fee is as high as 50 percent.
While the loosely regulated $1.9 trillion industry’s fees have long been criticized as being too high, clients have mostly ended up paying them for access to a red-hot asset class where top fund managers routinely delivered double digit returns. And Moynihan said that top managers will continue to be able to command those types of fees.
But now that overall industry returns are more modest — the average hedge fund has lagged behind blue chip stocks and technology stocks this year — big players like Bank of America are working hard at pushing down some fees for clients.