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Hedge funds take fee cut, rework ‘2- 20’ rule

Business Standard – Barely a year old, the Indian hedge fund sector is already experimenting with the global standard fee structure for such investment vehicles.

Hedge funds the world over typically charge a two per cent management fee and also take 20 per cent of any profits they make above a certain hurdle rate, the so called ‘2 and 20’ model.

Indian hedge funds are reworking this. Some take one per cent in fixed fees, others 1.5 per cent. Some are even willing to take zero per cent, according to sources. Their cut of the profits are also said to be 15 per cent in some cases and even 10 per cent in others.

Swapnil Pawar, chief investment officer at Karvy Capital, which runs a hedge fund, said the fee structure for India is unlike their global peers.

“The lower fee some funds in India are charging is unusual if one looks at the global context. Most global hedge funds follow the ‘2 and 20’ rule. Many tend to be small and independent units, which need the fixed fee to cover their expenses, since they do not have the backing of a financial institution,” he said.

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