Allocators Increasingly Push for Hedge Fund Hurdle Rates

Institutional investors often overlook high hedge fund fees — if a manager can deliver net returns that justify the outlays. But many are now asking hedge funds to add a hurdle rate — deliver some outperformance before they start paying for it.

Investors who pay the highest fees generate the highest returns. In 2022, allocators that generated returns of more than 10 percent paid an average of 6.13 percent in total fees (1.46 percent for management, 3.25 percent for performance and 1.24 percent for expenses), while those that generated negative returns paid 2.27 percent (1.43 percent for management and 0.81 for expenses), according to BNP Paribas’s 2023 Alternative Investment Strategy Survey, which polled 185 allocators...

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