28 October 2010

How much fees should you pay for a hedge fund investment?

In order to attract investors still smarting from losses incurred during the credit crunch and stung by what some see as unfair treatment by funds, some hedge funds have resorted to offer more flexible fee structures than the traditional 2 plus 20 formula that was the norm until recently. But are they a big enough move or should investors demand more than just a few percentage points off the performance fees (while at the same time being asked to commit their money for ever-longer periods)? If anything, required returns on investment should be higher in the case of illiquid investments and having to wait up to five years before being able to access one's money is not to every one's taste.