Typically delivering high double-digit returns, hedge funds have had no trouble charging investors, typically, 2-and-20: 2% of assets and 20% of gains. But with performance disappointing of late, some investors are pressuring hedge funds to lower their fees, BusinessWeek reports. And wealthy investors’ interest in hedge funds is on the decline; 27% of households worth more than $25 million own hedge funds, down from 38% two years ago, according to Spectrem Group. Last year, the average hedge fund returned 12.9%, whereas the S&P 500 rose 15.1%. “We have no problem paying high performance fees for a manager’s selection, but we find taking on average market risk inherently unsatisfying,” said Russell Read, chief investment officer of CalPERS. Robert Discolo, head of hedge fund securities at AIG Global Investment Group, agreed: “In most cases, [managers] don’t deliver enough to justify their fees. Most funds are doing things that can be replicated much cheaper.” As a result, institutional investors with large stakes in hedge funds are pressuring the managers to lower fees. At the same time, some hedge funds are voluntarily rewarding investors who agree to lock up their money for three years, rather than the standard one year, with a 1.5-and-15 rate, that is, 1.5% of assets and 15% of profits. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.
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