Are Pensions the New Power Players In Hedge Fund Land?
According to "Hedge Fund Power Shift Could Be A Good Thing," Securities Industry News reporter Carol Curtis (May 18, 2009) posits that hedge funds will benefit from a recent push to lower fees. Say what? Yes indeed. The thinking goes like this. As pensions push for lower fees and improved transparency from hedge fund and private equity fund managers alike, their win may thwart U.S. and global attempts to regulate alternatives. This in turn will put smiles on the faces of non-traditional fund managers, making for interesting bedfellows all the way round.
Speaking of full disclosures, I was interviewed for this article by Carol Curtis. I pointed out the nature of recent demands for concessions, adding that pensions, endowments and foundations should ask about the make up of both administrative and performance fees rather than relying on gross percentages.
Suppose an institutional investor is comparing Hedge Fund A against Hedge Fund B. The latter may spend more on operations because it licenses a sophisticated risk management system which in turn helps that fund monitor its holdings on a regular basis. Is the "cheaper" fund the better choice? It depends on a variety of issues. The point is that total fees charged may not tell the full story. Institutional investors will want to understand the nature of spending and the basis on which performance numbers are calculated, at a minimum.
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