Fewer than 40% of the 176 hedge funds launched in the first quarter of 2019 will set performance fees of 20% or more, according to data from EurekaHedge. Despite a brief reprieve in 2018, there has been a downtrend in hedge fund performance fees since 2015, when the "2-and-20" fee arrangement was industry standard. Pressure from competition and investors has eroded that standard as more funds vie for assets from clients still wary of the ability of the asset class to consistently outperform the public markets. Hedge funds, as measured by the HFRI Fund Weighted Composite index, have not outperformed large-cap U.S. equities on a three-year basis since 2010.
Where hedge funds have delivered, however, is in their volatility, which has been consistently lower over trailing three-year periods for more than a decade.
The industry added a net 82 hedge funds in the first quarter, with 176 launches and 94 closures. In the first quarter of 2018, 41 funds were launched and 155 closed.