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UPDATE 1-Hedge fund fees fall to lowest level since 2008 financial crisis- HFR

Reuters · 01/06/2023 05:16
UPDATE 1-Hedge fund fees fall to lowest level since 2008 financial crisis- HFR

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By Nell Mackenzie

- Hedge fund fees have dropped to their lowest levels since 2008, when Hedge Fund Research (HFR) began tracking the industry amid "volatile tensions" exacerbated by inflation and the fear of economic recession, the research firm said on Friday.

Base fees by hedge funds fell from the second to the third quarter of 2022 by one basis point (bps) to an estimated 1.35%, while the average incentive fee tumbled 4 bps to 16.01%, HFR said.

Both estimated fees represent their lowest levels since HFR began publishing the estimates in 2008, the added.

Hedge fund managers are traditionally known for their two-and-20 fees, which means a lower constant percentage is applied to the amount of assets managed in the hedge fund and then a higher incentive fee applied as a part of profit sharing when performance rise.

New hedge fund launches also hit their lowest level since the fourth quarter of 2008 when only 56 funds launched, the research firm said.

The estimated of hedge fund launches in the third quarter of last year decreased to only 71, less from the previous quarter.

"With significant uncertainty and wide disparity in economic outlooks into early 2023, it is likely that both launches and liquidations remain historic levels, as institutions carefully evaluate opportunities and deliberatively position portfolios for volatility in 2023,” said Kenneth J. Heinz, the president of HFR.

(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe)