With markets testing their mettle, the new mantra for hedge funds is ‘perform or pay back’! - a la shapeup or ship out. Hedge funds that enjoyed a one-sided bargain with their clients in reaping handsome fees now need to pull up their socks. For if they don’t, they will be losing some of their biggest clients. As per Wall Street Journal, the California Public Employees' Retirement System, popularly known as Calpers, that is one of the biggest investors in hedge funds, is demanding better terms from funds. This includes lower fees and claw-back of fees if performance weakens.
For the uninitiated, the US$ 172 bn pension fund is a bellwether in the money-management business. A Calpers investment can in fact help money managers like hedge funds attract other clients. This move by Calpers therefore underscores the changing dynamics between hedge funds and their clients. Just a couple of years ago, investors clamored to get an entry into these funds, agreeing to pay fees that in some cases reached as high as 3% of assets and 30% of profits. However, lately the same funds have come under fire for failing to live up to their promise to perform in good and bad markets. Besides pressure on fees, hedge funds are likely to face closer scrutiny from regulators, threats of higher taxes and more constraints on their trading strategies, after a year of broad-based losses. I hope the domestic mutual funds are listening. I have lost huge amount of money in this financial meltdown - when markets were at 21K- i use to hear from these intelligent fund managers that markets are too high we are holding on to the case hence we are cautious however when the markets corrected all these fancy MFs were the first one to loose their shirts(should i say pants !)
For the uninitiated, the US$ 172 bn pension fund is a bellwether in the money-management business. A Calpers investment can in fact help money managers like hedge funds attract other clients. This move by Calpers therefore underscores the changing dynamics between hedge funds and their clients. Just a couple of years ago, investors clamored to get an entry into these funds, agreeing to pay fees that in some cases reached as high as 3% of assets and 30% of profits. However, lately the same funds have come under fire for failing to live up to their promise to perform in good and bad markets. Besides pressure on fees, hedge funds are likely to face closer scrutiny from regulators, threats of higher taxes and more constraints on their trading strategies, after a year of broad-based losses. I hope the domestic mutual funds are listening. I have lost huge amount of money in this financial meltdown - when markets were at 21K- i use to hear from these intelligent fund managers that markets are too high we are holding on to the case hence we are cautious however when the markets corrected all these fancy MFs were the first one to loose their shirts(should i say pants !)
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