WSJ – The hedge-fund industry may be on track to deliver its best annual returns in years, but many managers still aren’t in a position to collect performance fees.
Most hedge-fund fortunes were earned through the collection of performance fees, typically 20% of any profit. The fee structure gives managers an incentive to outperform and provides some protection for their investors. But in the third quarter, roughly two-thirds of funds globally still hadn’t recovered from the steep declines of 2008, estimates Chicago data tracker Hedge Fund Research Inc., or HFR. About a quarter of funds were more than 20% below their previous high point, or high-water mark, and thus couldn’t charge performance fees for this year’s gains.