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March 04, 2016 at 09:32 AM
Hedge funds that rolled out in 2015 offered investors discounted fees, and sometimes tiered management fees, as incentives to join their founders classes, Seward & Kissel, a law firm with offices in New York and Washington, reported this week.
At the same time, the new funds made it tougher for investors to redeem their assets.
“The 2015 study reveals a more even balance of power between hedge funds and investors,” lead author Steve Nadel, a partner in the firm’s investment management group, said in a statement.
“More funds found it necessary to lure initial investors with reduced fees, but at the same time, investors understood that many strategies warranted a longer redemption cycle.”
The study comprised 2015 hedge fund launches sponsored by new U.S.-based managers who were Seward & Kissel clients. The firm said the number of funds under consideration was large enough to extract a representative sample of important data points relevant to the hedge fund industry.
The study found that 35% of funds using equity-based strategies — but none of the non-equity funds — offered tiered management fee discounts, whereby fees decrease as assets increase, in their founders classes, up from 25% in the 2014 study.
This may be a nod to investor concerns, it said, but funds also tightened their redemption restrictions, with 88% allowing quarterly or less frequent redemptions, compared with 81% in 2014, and only 12% permitting monthly redemptions, down from 19% in 2014.
In addition, 88% of all funds had some form of lock-up or gate, compared with 85% in 2014.
According to the study, 80% of hedge funds used equity-related strategies last year, up from 73% in 2014 and 65% in 2013.
