Traditional hedge funds continue charging higher management fees than bespoke counterparts

Traditional hedge fund managers continued to charge a higher management fee, with an average of 1.8% annually in 2023, while their counterparts, managers with bespoke strategies, charged a lower management fee at an average rate of 0.9%.

That was one of the findings of the 2023 Seward & Kissel Established Manager Hedge Fund Study, which was released on Sept. 17.

“Established managers” comprise Seward & Kissel’s investment manager clients that have been in business for at least five years and manage more than $1 billion in regulatory assets.

Seward & Kissel defines “traditional” strategies as long/short, macro, debt/equity; while “bespoke” strategies comprise such things as income funds and defensive funds. In this study, only 10% of the funds offered bespoke strategies.

In addition, 50% of the established managers in the study with traditional strategies had equity-focused portfolios, followed by 25% macro and 25% credit strategies.

Moreover, 25% of the traditional strategy funds did not charge an incentive allocation. For the 75% of hedge fund managers that did charge an incentive allocation, the average rate was about 22%.

None of the bespoke strategy funds charged an incentive allocation.

In addition, 20% of the traditional strategy funds had a hurdle rate.

Among the traditional strategy hedge funds, 25% offered monthly liquidity with at least 15 days’ notice. The remaining 75% of traditional strategy funds had an average of 55 days’ notice with quarterly liquidity (with 25% of the75% of traditional funds also imposing a quarterly gate).

Seward & Kissel is a law firm that primarily focuses on corporate and litigation work for clients seeking legal expertise in the financial services, corporate finance and capital markets areas.