New hedge fund needs at least US$300 million in assets just to break even a far cry from the pre-crisis days when managers could start with tens of millions, according to a survey by Citi.
The report says that the business of hedge funds is caught between rising costs and falling management fees, holding little profit for managers who don’t perform.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
According to the survey, the traditional "2 and 20" model of investment manager compensation – 2% management fee and 20% of the profits — has declined to fee levels as low as 1.58% of assets under management for all but the largest managers.
Also, compliance and regulatory costs have risen because of new rules such as the Alternative Investment Fund Managers Directive in Europe and Dodd-Frank legislation in the US.
Alan Pace, global head of prime brokerage and client experience at Citi, said: "Fee compression continues to reshape the business of hedge funds, lowering fees even as expenses rise, all but eliminating fee-only operating margins, and raising the level of assets needed for a hedge fund business to succeed."
In this latest survey, Citi Prime Finance surveyed 124 hedge fund firms in North America, Europe and Asia representing US$465 billion, more than 18% of total industry assets.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData
