One former Bridgewater Associates analyst is taking a radical approach to the hedge fund fee compensation structure — He’s pretty much ditching it.
Howard Wang, 28, isn’t charging a performance fee for his new global macro fund Convoy Investments LLC, Bloomberg News’ Kelly Bit reports. Instead, he’ll only charge a 1.25% management fee.
It’s definitely an interesting approach to attract investors.
Fund managers are paid through a compensation structure commonly known as the “2 and 20”, which stands for a 2% management fee and a 20% performance fee charge.
More specifically, “2 and 20” means a hedge fund manager would charge investors 2% of total assets under management and 20% of any profits. While “2 and 20” is the standard in the industry (that’s what Bridgewater uses), those numbers can vary from fund to fund. Steve Cohen’s SAC Capital, for example, charged 3 and 50 and Jim Simons charged 5 and 44.
Lately, it’s become harder for fund managers to justify the fee structure, especially since most funds have been underperforming the broader market.
Wang opened his macro fund back in November, and his fund was up 10% this year through June. That’s solid performance since most macro fund have gotten hammered this year.
Right now, it only manages employee and friend/family capital but he’s looking to raise $US200 million, the report said.
Let’s see if Wang starts a trend.
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