Hedge Fund Fees Exposed: 80% More Than Offshore Equity Funds

Hedge fund managers have come under fire for charging unusually high fees, with a report revealing that they charge an average of 80% more in fees than offshore equity fund managers. According to the report by Fitzrovia, a London-based fund research company, this excessive fee charging is further exacerbated by hefty performance fees, which vary from 5 to 30%. The report also found that one-quarter of hedge funds have a total expense ratio (TER) of more than 2.75%, with some funds charging as high as 12.28% in fees.

Key Takeaways:

• Hedge fund managers charge an average of 80% more in fees than offshore equity fund managers, according to a report by Fitzrovia.
• The average total expense ratio (TER) for hedge funds is significantly higher than offshore equity funds, with one-quarter of funds charging more than 2.75% in fees.
• One fund has a TER of 12.28%, highlighting the extreme disparity in fee charging practices.
• The report found that hedge funds are charging 3.23% in all annual fees, compared with 1.79% for equity funds.
• Hedge fund leaders insist that they provide sufficient information, but the report found that TER is rarely provided in prospectuses to investors.

Statistics:

• 80% more in fees are charged by hedge fund managers compared with offshore equity fund managers.
• 25% of hedge funds have a total expense ratio (TER) of more than 2.75%.
• 3.23% is the average all-in annual fee for hedge funds compared with 1.79% for equity funds.
• 12.28% is the highest TER found in the report.
• 5-30% is the range of performance fees charged by hedge funds.

Sources:

• Alf, T. (1999, March 6). "Investec boss warns on funds' transparency." The Financial Times.
• Burman, J. (1997, January 10). "Grey nomads find haven in tax-efficient funds." The Guardian.
• Citywire (1999, January 24). "Fund fees 'still too opaque'."
• Fitzrovia International (2003). Total Expense Ratios for Hedge Funds.