Hedge fund managers are more willing to reduce their fees as the competition for institutional investor clients intensifies, according to a new report from Preqin.
The alternatives assets data firm said 74% of the fund managers it surveyed in November 2016 were willing to reduce fees in general, and over half reported that they would cut their management fee.
In its Hedge Fund Manager Outlook for the first half of 2017, Preqin said: “This shows that fund managers are receptive to lowering their fees in the current climate as competition for institutional capital intensifies.”
Since 2007, the average management fee for hedge funds launched each year has been gradually decreasing from 1.66% to 1.51% in 2016, it said.
In the latest poll, 64% cited investor demands for more favourable fees as a key driver of change for the industry in 2017. This was second only to performance, cited by 73% of fund managers.
A year ago 33% of fund managers named performance and 28% pinpointed fees as drivers of change, Preqin said.
The group said this change indicated concerns around these areas were growing “in light of an increasingly cautious investor base”.
Amy Bensted, head of hedge fund products at Preqin, said: “Investor dissatisfaction shows no signs of abating in the early part of 2017, and it is clear that addressing investor pressure around performance and fees will be the key challenge for hedge fund managers in the year ahead.”
Hedge fund managers would aim to build on the three-year high average returns of 7.3% in 2016 to restore confidence in the asset class as a whole and start reversing the trend of outflows, she said.
But improved performance alone would not be enough to calm investors’ worries that hedge funds were not giving them sufficient value, Bensted said. Investors indicated they wanted to see more cuts in fees, and managers seems increasingly inclined to provide them, she added.