Managers across the industry have cut fees including Brevan Howard, which has been experimenting with its structure to retain clients. Unhappy pension funds and endowments have slashed their allocations to hedge funds.
The problem with the traditional fee structure is that it overpays hedge funds when they underperform, according to Jonathan Koerner, a partner at Albourne Partners, which advises investors on alternative assets.
Koerner worked as a consultant with Texas Teachers last year on the 1-or-30 model. “Everyone wants lower fees but it’s not just about concessions,” he said in an interview.
About 60 hedge fund managers globally have embraced the structure, up from just 16 in mid-February, Koerner said. “I don’t think we could have imagined the rate of adoption in the industry,” he said.
Koerner said not all funds agreed with the changes -- some top performers refused while others parted ways with Texas Teachers. Utimco is also an Albourne client.
Timothy Spangler, a partner at the law firm Dechert LLP who specializes in private investments, said the Texas Teachers and Utimco fee structure may help align performance and profit.
“There’s not been that much innovation around the fee structure,” he said. “Hopefully it gains traction and is a first shot in a series of innovations.”
This article was provided by Bloomberg News.