Hedge Fund Investors Are Getting More Demanding About Charges

More hedge funds are agreeing to conditions on their performance fees, reflecting a tougher environment for attracting investors to riskier strategies.

A survey by Barclays Plc found 67% of investors now prefer a hurdle rate, meaning the fund must perform a certain amount above a threshold before they can charge incentive fees.

And hedge funds appear to be obliging, with investors indicating hurdle rates were more available in 2023 compared to historically, according to around 310 asset allocators polled by Barclays.

Funds are facing questions about fees and expenses in a high-rate environment in which relatively low-risk products provide decent returns. Last year, the average hedge fund returned about 8%, according to data compiled by Bloomberg, while the risk-free rate was about 5%.

However, these averages mask the extremes: the priciest funds are able to keep most of their profits as fees, while investors piled on downward pressure on many funds by yanking more than $100 billion from the industry for the second consecutive year in 2023, according to Nasdaq eVestment.

Hurdle Rates in Allocations