Hedge Funds Terms and Fees

admin | Tuesday, September 22nd, 2009 | No Comments »

Hedge Funds Terms and Fees

Hedge Funds Resist Push to Change Terms and Fees

Hedge funds were expected to cave on demands by investors to lower fees and make it easier for investors to redeem their investment, but it seems that hedge funds have resisted the push. As hedge funds have performed very well so far in 2009 managers feel less pressure than they once did to keep investors.

Research from Olympia Capital Management found that only a small portion of 2,659 funds reduced the time between redemption dates or reduced the lock-up period on investors’ capital. Also, hedge fund fees have not changed significantly, despite predictions of lowered fees. Performance has been far better than last year and the hedge funds that survived 2008 are larger and were able to perform well even in the financial crisis so they have greater leverage in negotiating terms.

Funds may also be holding back on offering features that can become a double-edged sword in a crisis. Investors like buying funds that give them the option to redeem at frequent intervals. But it can also make them the first port of call for investors that can’t get their money out elsewhere, even when a fund is posting strong returns.

Dozens, if not hundreds, of hedge funds slammed down “gates” last year to prevent investors from pulling money. On top of liquidity terms that can range from one month to three years, hedge funds nearly always have a right in their contracts with investors to put a gate down on part or all of their capital to avoid being forced to sell assets at inopportune times.

Long periods between redemption dealing dates can make sense for funds that invest in illiquid assets such as distressed debt, corporate loans, private equity or penny stocks. But even funds purportedly investing only in widely-traded stocks regularly lock up investors’ money for a year or more and then only offer to return it on a quarterly basis. Source

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Preferred Hedge Fund Terms

admin | Wednesday, August 19th, 2009 | No Comments »

Preferred Hedge Fund Terms

Investors Gaining Preferred Hedge Fund Terms

Hedge funds suffered heavy losses and redemptions during the worst of recession and now, as the hedge fund industry is recovering, investors are finding managers more flexible. Institutional investors have succeeded in persuading major hedge fund managers to establish new funds, share classes or more reasonably-priced offerings. The consenting hedge fund managers include Renaissance Technologies Corp., Citadel Investment Group and Diamondback Capital Management.

Renaissance Technologies Corporation will create a hedge fund exclusively for institutional investors in the next 2-3 months, according to an executive with Renaissance’s institutional subsidiary. Chicago-based Citadel Investment Group will create a family of single-strategy hedge funds with lower management fees than its flagship funds. Diamondback Capital Management, along with other hedge funds, recently agreed to lower fees by providing a share class that gives investors a smaller fee for a longer lockup period. All of these decisions are the result of a push back by institutional investor toward better terms and lower fees. Several hedge funds, desperate for capital during the last year, have agreed but it’s possible that the status quo will return if hedge funds continue to perform well.

This is definitely a change from the hay day for hedge funds when investors were much less concerned about the terms of the agreement, rather many institutional investors were simply pleased to have access to exclusive hedge funds. Jane Buchan, CEO of hedge fund-of-funds manager sees this change, “Everybody is thinking about terms these days, where they definitely weren’t before. We’ve found it much easier to negotiate lower fees, transparency and the type of investment vehicle.”

There is some disagreement about the value of different share classes. While instutional investors are often drawn to “institutional-only” funds, hedge funds often disregard the label and allow other investors in as well. Under the varying share classes, hedge funds are often able to negotiate better terms because of the exclusivity of the fund. Thus they can demand longer lock-up periods and larger minimum investments but may also add non-institutional investors. Yet this is a distinct change in manager-investor relations as hedge fund GP’s are more willing to negotiate with limited partners.

“The difference now is that hedge fund managers are willing to sit down and talk about all of this, which wasn’t the case a couple of years ago,” said a managing director at an equity hedge fund manager, who asked not to be identified.

Still, some believe the changes are largely cosmetic, repackaging existing share classes as “institutional” to make them more attractive to pension funds, endowments and foundations.

When it comes to comparing institutional vs. non-institutional hedge fund share classes “it’s really about the sizzle vs. the steak,” said William Crerend, president and CEO of hedge funds-of-funds manager EACM Advisors LLC, Norwalk, Conn. “You need to get under the hood of these vehicles and see whether you really come out better given the terms of the investment,” Mr. Crerend said.

Mr. Crerend also said “there likely will be a spectrum of outcomes” when it comes to the ways that hedge funds satisfy institutional investor needs, ranging from separately managed accounts to single client funds, institutional feeder funds for flagship strategies and institutional share classes. Source

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Hedge Fund Terms | Glossary of Hedge Fund Terms

admin | Friday, March 21st, 2008 | No Comments »

Hedge Fund Terms

Hedge Fund Terms & Definitions Guide

I have started collecting definitions of several hedge fund terms, definitions and analytical ratios. Eventually I hope to define over 100 different hedge fund terms here. If you want to contribute a definition please email me the information at Richard@RichardCWilson.com.

List of Hedge Fund Terms

Portfolio Analytics Hedge Fund Terms

General Hedge Fund Terms

Investment Terms and Definitions

- Richard

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Top 10 Hedge Fund Myths

admin | Monday, January 21st, 2008 | No Comments »

Top 10 Hedge Fund Myths

There was an interesting article posted over the weekend by the Business Times Online this week entitled “Hedge Fund Managers, Lords of Lucre.” The article discusses the general public’s view of hedge funds and how they make money. The journalist who wrote the article uses several extreme examples while depicting the hedge fund industry, this is part of why I write in this blog. There are a lot of aspects about the hedge fund industry that would be hard or nearly impossible to learn by reading mainstream media sources on the subject. To help answer the question about who hedge fund managers are here is a list of what is not true.

Top 10 Hedge Fund Myths

Most hedge fund managers are billionaires
Hedge Funds are risky investment vehicles
The hedge fund industry in general is struggling and investors are taking their money out of these types of investments
The United States has the same access to hedge funds as other developed countries
Hedge Funds aren’t performing as well as mutual funds or stock market indicies
It is very hard to get any job within the hedge fund industry
Hedge fund managers generally drive Ferrari’s and live in extreme excess
It is hard to learn anything about what hedge funds do or even what strategies they use
Hedge funds blow up all the time
Most hedge funds manage billions of dollars of capital

Are you a hedge fund manager or consultant in the industry? Want to share a couple more myths that you often run into with clients or investors? Please comment below or email me at Richard@RichardCWilson.com and I’ll post your ideas as well.

1.23.08 Post Update: A blog reader has contributed the following additional myths to this list:

11. Hedge fund managers are cowboys who enjoy hurting the markets
12. Hedge fund managers have some “secret” to trading the markets

13. Hedge fund managers have it easy and really don’t have to work to hard (my favorite new addition to the list)

14. Hedge funds cause market volatility. and the obvious corollary – they prosper at the expense of the common investor.

- Richard

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