Hedge fund managers who charge performance fees greater than 20% produce better net returns over longer periods than those who charge 20% or less, according to new data from research house Preqin.
For periods ended July 31, the most expensive hedge funds with incentive fees over 20% returned a net 7.79% year-to-date; one year, 13.29%; three years, 10.73%; and five years, 10.55%.
By contrast, for the same time period, hedge funds with a 20% performance fee returned a net 4.1% year-to-date; one year, 8.69%; three years, 7.98%; and five years, 8.34%.
Finally, funds with fees under 20% returned 6.35% year-to-date; one year, 13.32%; three years, 6.89%; and five years, 7.31%.
Preqin's multiyear returns are annualized.
“This shows that funds with higher performance fees are generally producing better and more consistent net returns, which is attractive to many investors in this low-interest-rate environment,” Preqin researchers said in their hedge fund fee report, which was released Thursday.