The hedge fund industry needs a new fee structure, said David C. Saunders, co-founder and managing director of K2 Advisors, a hedge fund of funds manager.
He told attendees at the MAR Conference that the usual base fee of 1% to 2% plus 20% of profits probably is not a good long-term approach. It makes hedge fund managers focus on managing volatility at the expense of managing the underlying assets, and portfolio managers who fall below their high-water marks tend to leave their firms early, he said.
Mr. Saunders recommended that the industry instead look at a 1% base fee plus a performance fee over some hurdle rate or benchmark.
