As investors grow increasingly sensitive to management and performance fees – and ever more aware of the disparities that may exist between what they are paying and what they are receiving in return – the traditional “2 and 20” fee model faces rising competition from alternative structures. More and more fund managers are testing, marketing and deploying alternative fees and terms with a view toward attracting investors who were dissatisfied with compensating fund principals who do not really deliver. Along with alternative fee structures, innovative terms with respect to hurdle rates and performance-fee crystallization also constitute a growing trend. See “Survey Reveals Substantial Disconnect Between Actual and Desired Hedge Fund Fee Structures
” (Aug. 3, 2017); and “Investor Pressure Drives New Performance Compensation Models and Increased Disclosure Obligations for Managers
” (Jun. 29, 2017). To provide readers with a sense of how widespread alternative fees and terms are, and of just how competitive the market has become, the Hedge Fund Law Report has conducted a survey of fund managers, asking whether they have experienced strong demand from investors for alternative fees; whether they have offered alternative fees; how investor demand for alternative fee arrangements has varied according to investor size and profile; and how the market has responded to alternative arrangements implemented by managers. This article presents the results of the survey. For results of other industry surveys conducted by the HFLR, see our two-part series on “How Are Your Peers Responding to the Most Intrusive Requests From Hedge Fund Investors?”: Part One
(Mar. 17, 2016); and Part Two
(Mar. 31, 2016); and our two-part series on trade errors: “How Hedge Fund Managers Define and Handle
” (Oct. 15, 2015); and “How Hedge Fund Managers Detect and Bear Responsibility For
” (Oct. 22, 2015).