{"title":"The Myth of Hedge Fund Fee Diversification","authors":"Fei Meng, D. Saunders, L. Seco","doi":"10.3905/jai.2019.1.077","DOIUrl":null,"url":null,"abstract":"Many innovative hedge fund fee structures have been introduced in recent years in response to concerns about both the level of hedge fund fees and the incentives they may provide. A traditional fee structure consists of a flat fee charged as a percentage of the assets under management, together with a performance fee consisting of a percentage of the profits earned. A fee structure that has become more popular recently is the first-loss structure, in which the manager receives a higher performance fee in return for providing some downside protection to investors by insuring some of their losses. Combinations of these fee structures have also been proposed, with the possibility that investors may benefit from some diversification among the fee structures. By considering the investors’ risk–reward trade-off, the authors show that there is in fact very little benefit from such fee diversification. TOPICS: Real assets/alternative investments/private equity, performance measurement","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.4000,"publicationDate":"2019-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Alternative Investments","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jai.2019.1.077","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 2
Abstract
Many innovative hedge fund fee structures have been introduced in recent years in response to concerns about both the level of hedge fund fees and the incentives they may provide. A traditional fee structure consists of a flat fee charged as a percentage of the assets under management, together with a performance fee consisting of a percentage of the profits earned. A fee structure that has become more popular recently is the first-loss structure, in which the manager receives a higher performance fee in return for providing some downside protection to investors by insuring some of their losses. Combinations of these fee structures have also been proposed, with the possibility that investors may benefit from some diversification among the fee structures. By considering the investors’ risk–reward trade-off, the authors show that there is in fact very little benefit from such fee diversification. TOPICS: Real assets/alternative investments/private equity, performance measurement
期刊介绍:
The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices