September 16, 2014
The money most of the hedge-fund managers make is undeserved as the management fees which they charge does not reflects the declining interest rates and fund returns, Unigestion Holding SA, an investment firm based in Geneva, said.
Nicolas Rousselet, President of the hedge funds division at Unigestion, said that the management fees, which ranges up to 2% of a fund’s assets, represents a disproportionately large share of the total remuneration, which is completely unrelated to performance.
While suggesting a solution to align the compensation which a hedge-fund manager receives more with performance, Rousselet said that the fund industry should either abandon the management fee or add a condition to it which a manager needs to fulfil before collecting incentive fees.
In a recent interview, he has remarked: “The philosophy of the hedge-fund industry, ideally, is to remunerate true talent. Therefore, fund managers should be paid when they perform. In case they fail to perform the company should not pay them for doing nothing.”
Reports said that a drop in the fees can be observed amid efforts to win mandates in an industry that traditionally charges about 20% on performance and 2% on the total assets. Investors paid an average 1.69% in 2013, with the share of those who paid 1.5% or more at 79%, almost unchanged from 2012, a survey published in February said.
It was noted that the global hedge funds returned 8.6% in 2013 and 6.9% in 2012, compared with 10% to 21% in nine of the 11 years through 2010.
Rousselet further said that Unigestion manages investments worth USD 16 billion, of which USD 2 billion is invested in about 60 hedge funds through its ‘funds of hedge funds’. At least 94% of the firm’s assets come from about 250 institutional clients and 6% from high-net-worth families.
Claiming that fee negotiations have become a more accepted practice for investors and managers worldwide, the financial expert noted: “We are negotiating with hedge-fund managers. But if you buy a top manager, the bargaining power is not in your hands.”