Pension funds say they've been prevented from investing in hedge funds not because the asset class is deemed overly risky, and not because it's felt there just aren't enough good managers. Rather, the perception is that hedge funds are opaque and that their fees are too high. All this emerges in KPMG's recent highly informative hedge fund study, Hedge funds: a catalyst reshaping global investment. Regulatory bodies are attempting to deal with the first of these issues, but what will it take for managers to start lowering fees?
Although the rest of the world works on the premise that greater competition results in lower prices, the hedge fund industry seems to dance to its own tune. Another day and another CEO/manager/analyst/trader leaves to set up a hedge fund, yet fees continue to increase. The average hedge-fund investor pays as much as 3.5% of assets a year in fees, according to a recent study by hedge fund adviser LJH Global Investments.
Perhaps, then, the recent average-to-poor performance of hedge fund strategies will force managers to reassess their fee structures. They need to realize that they are here for the long haul and that pension funds could be a reliable source of income.