It would appear that the now traditional 2% annual management
and the 20% performance fees paid to hedge fund managers is a
dying model in the fledgling world of alternative UCITS.
The changing dynamics within the industry is eroding the
traditional fee model. The 615 funds (including liquidated
funds) in the Absolute UCITS database highlights that there are
389 funds that have an annual management fee between 1% and
Some 95 funds have an annual management fee of less than 1%, 88
funds charge the traditional hedge fund standard of 2%, 33
charge more than 2% and one fund manager charges 4.4% with no
More than 320 funds, the majority of funds on the database,
charge a performance fee of 20%. This is followed by 156 funds
that charge between 10% and 20%, while some 78 funds have no
fee, 13 funds charge more than 20% and 19 funds charge between
5% to 9%.
The above figures do not include early bird share classes or
The figures highlighted from the Absolute UCITS database appear
to show pretty clearly that the two-and-twenty model is
definitely dying – at least for UCITS versions of
hedge fund strategies.
Only 24 funds in the database used the traditional model and a
prototype, which is harder to say than two-and-twenty, is
developing within the industry. Indeed the four largest funds
on the database, by asset size, do not use the traditional 2/20
We are living in an age where the balance of power has shifted
towards investors, especially larger investors, who have grown
increasingly cautious as a result of two disastrous bear
markets in the past decade.
Fees have become more competitive because of increased
competition between traditional asset managers who need to
generate alpha and alternative managers going into the retail
In the era of austerity where there is increasing choice and
competition, institutional investors will be able to negotiate
more favourable terms. And even retail investors with their
sticky money look increasingly be able to take advantage of
early bird share classes where they are offered.