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Fees on global hedge funds rise in 2012

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Average performance and management fees of global hedge funds are increasing, new research shows.

Cerulli Associates, Boston, discloses this finding in the March 2013 issue of “The Cerulli Edge: Global Edition.” The monthly publication analyzes asset management trends, data and strategies worldwide.

Average performance fees increased to 19.28 percent in 2012 from 17.84 percent in 2010. For three consecutive years, the report adds, the number of new funds reporting a hike in their performance fee outnumbered those cutting theirs.

IN 2012, the number of funds with an increased performance fee stood at 33, as compared to the 31 funds that year with decreased performance fees. Similarly, in 2011 and 2010, 61 funds and 31 funds, respectively, had increased performance fees. That compares with the 51 funds and 20, respectively, with decreased performance fees that year.

“The upward trajectory suggests that some bargaining power has been reclaimed from investors by the managers, even those of young funds,” the report states.

In 2012, the report adds, average management fees stood at 1.8 percent, up from 1.6 percent in 2011 and 1.7 percent in 2010.

When asked which alternative investment attributes resonate most with them, “reduced portfolio volatility” and “provide more diversification” ranked highest at 4.6 on a scale from one to five, one indicating least important and five most important.

Other attributes that ranked lower on the performance scale were “risk reduction” (3.7), “provide greater return opportunity” and “more alpha” (2.6), hedge against inflation/real returns (2.2) and defensive play/bear market protection (2.1).

Turning to the top strategies being considered for development or current in development, the Cerulli report flags long/short/extension strategies (11 percent currently in development; 39 percent considering development), multi-alternative or alternative allocation strategies (11 percent and 28 percent, respectively); and currency strategies (11 percent and 28 percent, respectively).

“U.S. managers are focusing on strategies that can broadly diversify the portfolio (with the exception of currency, usually used for alpha generation),” the report states. “Managers are moving away from strategies that previously showed more promise, including private equity, hedge fund replication, alternative energy and bear market [strategies].”


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