Fund appreciation rights would change hedge fund compensation
Mon Oct 5, 2009
FARs offer a new way of calculating performance fees.
Investors have a new tool in their arsenal that could change
the way hedge fund managers are compensated. Fund appreciation
rights—which serve a function similar to stock
options—help investors ensure that
managers’ interests are aligned with their own by
restructuring and delaying payment of performance fees. For
some industry participants, it’s a
win–win situation, though others are more
Hedge fund investors have traditionally agreed to a
2–and–20 fee structure, whereby fund managers
receive a management fee of 2% of total assets and 20% of any
gains made on that money at the end of each year. FARs offer a
new way of calculating performance fees. Instead of paying
managers 20% of total gains on an annual basis, fund managers
take all of the gains on 20% of an investors’
allocation, paid only after a predetermined period of three
years or more.
ISSN: 2151-1845 / CDC10004H
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