Barron’s – There have been headlines almost daily about hedge funds’ poor performance and hefty fees. The funds, which typically levy a 2% management fee and take 20% of returns, have gained less than 3% in 2014, versus a 12.3% rise for the Vanguard S&P 500 ETF (ticker: VOO), whose expense ratio is 0.05%. But a small group of sophisticated investors say they’ve found a different way to get dependable, income-like returns from hedge funds without relying on sometimes erratic returns. They’re buying minority stakes in hedge funds’ management companies and getting some of those fees.
“Our institutional investor base, sprinkled with a few high-net-worth individuals, is looking for consistent, attractive yield, which has been averaging a net 10%,” says Michael Brandmeyer, co-head of the private-equity group at Goldman Sachs Asset Management, which runs Petershill Fund I, established in 2007 with $1 billion in assets. Securing a 10% rate of return in a low-rate world is no small feat.
