Hedge fund assets invested through separately managed accounts will rise to $790 billion by 2011, up 69% from this year, according to a study by TABB Group, a capital markets research and strategic advisory firm.
The growth in separate accounts “is a reaction by investors to a lot of concerns expressed in the last year” over transparency, liquidity and fraud, said Matt Simon, TABB research analyst and author of the study, “U.S. Hedge Funds 2009: Fees, Redemptions and Managed Accounts.”
TABB predicted that total assets of the hedge fund industry globally, which include commingled funds as well as separately managed accounts, will grow 38% over the same period to $1.8 trillion. U.S.-based hedge funds account for 75% of those assets, Mr. Simon said.
The study is based on interviews conducted from May through July with executives of 62 U.S.-based hedge funds, whose combined assets under management were $127 billion, representing nearly 10% of the total hedge fund assets.
Some 77% reported that investors' three top concerns are operations, safety of strategy and liquidity risk, the study found.
Hedge fund industry management fees will total $25 billion next year, when assets are projected to total $1.5 trillion, a 10% increase in the fee from 2009, Mr. Simon said.
The TABB study expects the rate of management and performance fees to decline slightly over the next two years, even though they do appear stagnant today, Mr. Simon said. The industry standard fee is typically reported as a 2% management fee and a 20% performance fee. But when weighted by assets under management, it's a 1.75% management fee and a 21.93% performance fee, Mr. Simon said.
Separately managed account fees are similar to fees of the hedge fund industry as a whole, he added.
“Investors will pay for performance, so there is not as much need for the performance fee to go down,” Mr. Simon added. In defense, “hedge fund managers feel they have a unique process … (coupled) with the work they put in, buying and shorting stock.”
