Consultant Wonders if Performance Fees Are Fair

LONDON (HedgeWorld.com)–Fitzrovia International plc devised a performance fee checklist for determining the suitability of a given fund’s performance fee as part of a recently published report.

The fund consultant also surveyed funds using performance fees about their use of hurdle rates, indexes, high-water marks, fee equalization, and fee caps.

Fitzrovia took on the research because of the growing interest in and use of performance fees. “It’s sort of a hot topic,” said Claire Appleton, a senior project manager who was in charge of the report. While there’s no single right answer on how to structure a performance fee, asking the right questions can lead an investor or fund company into a good decision.

Some of the questions on the list are fairly obvious, such as “How is the performance fee calculated?” or “Is there a hurdle rate.” Fitzrovia’s survey found that 87% of alternative investment funds use a high-water mark, 4% use a benchmark performance index, and just 18% use a hurdle rate.