The survey found a significant difference of 48 basis points in management fee rates between established managers and their newer competitors. For traditional equity strategy funds, established managers reported an average 1.9% management fee, while newer managers reported an average 1.42% fee.
"We believe that this difference may be partly attributable to the greater bargaining power possessed by Established Managers and the significantly higher overhead costs often borne to them due to much larger staffs," the report said.
Within established hedge funds, the survey found that management fees vary widely depending on the type of fund. In customized strategy funds, which are intended to take advantage of persistent high inflation and high interest rates, management fees were much lower. Established managers reported an average rate of 0.93% in management fees for customized strategy funds, compared with 1.9% for traditional funds.
"The difference in management fees between established funds employing traditional and bespoke strategies is dramatic but not unexpected, reflecting the fact that bespoke funds are much less alpha-focused," said Nicholas R. Miller, a partner at Seward & Kissel and lead author of the report.
The survey also found that established hedge fund managers charge more in performance fees, or incentive allocation rates. For their traditional strategies, established hedge fund managers that responded to Seward & Kissel's survey reported a consistent 20% incentive allocation rate, while newer funds had an average 18.75% incentive allocation rate, representing a premium of 125 basis points for established funds.
The firm attributed the difference in performance fees to "the challenges being encountered by new managers seeking to raise capital in the current environment."
