Wednesday, July 30, 2008

Hedge Fund Fees

In instances of poor performance, funds may choose to close down rather than work without fees, as would be required by their high water mark policies. Due to this, Hedge funds can have very short lifespans, especially if the manager makes a critical error. There is very little to prevent an Investor from losing all the money he invested in a hedge fund. In fact, hedge funds penalize investors who try to withdraw their money. They do this be charging investors a fee if they withdraw money from the fund before a certain period of time has elapsed since the money was invested. The purpose of the "surrender charge" is to moderate the outflow of assets, which can allow the fund manager to reduce the turnover of investments, fund managers claim this helps them invest in more complex, longer-term strategies. The fee also dissuades investors from withdrawing funds after periods of poor performance. The fee is typically known as a "withdrawal fee" or a "redemption fee" Having a hedge fund administrator for your fund is extremely important in today’s constantly changing hedge fund environment.

1 comment:

Richard Wilson said...

Some hedge funds charge fees for withdrawls but others do not because they are hungry for the assets and need the investors. I've written another article on high hedge fund fees here:

- Richard