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2011 global hedge fund survey - Fees and expenses - EY - United States

2011 global hedge fund survey: coming of age

Fees and expenses

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Many of the increased costs around regulation are being passed to the funds, and most do not object to that.

Investors largely object to the costs of shadow accounting and marketing being passed through by funds, but few object to a range of costs that many hedge funds don’t yet pass through.

Increased regulation and investor scrutiny have resulted in significant changes in how the industry operates, increasing costs for compliance, regulatory reporting and other infrastructure items.

These increases and the trend toward outsourcing – coupled with the extensive shadowing performed by the funds – are elevating costs and resulting in margin compression across the industry. As a result, there is renewed focus on evaluating how expenses should be shared between the investment manager and the fund.

An example is shadow accounting. Seventy-six percent of investors agree that it is important to perform, yet only one in three believes it is appropriate to pass these related costs through to the funds.

Does the management fee support such expenses in an environment of tightening margins? This will likely also be a factor as hedge funds re-challenge their extensive shadowing activities.



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