For investors planning to invest in Hedge funds, one of the major concerns is regarding the fees that are associated with the hedge funds. This article is designed to help concerned investors get their answers on the fees associated with hedge funds? After going through the information provided here, you will feel a bit more informed.
There are various fees involved in managing the hedge funds. In the majority of the financial markets across the globe, the following fees normally form a part of the hedge fund.
This is the fee that is charged by the hedge fund manager when the investor withdraws money from his/her hedge fund account. This fee has been introduced to discourage the investors from frequently withdrawing money from their hedge fund account. Such fees are applicable when the investor withdraws the money too soon or when the investor withdraws more money than the set limits.
This is the fee that goes to the fund manager who manages the hedge fund. The fee for the hedge fund manager is usually set between one percent and four percent of the total hedge fund value. This fee is usually paid to the fund manager in installments.
In addition to the management fee, the hedge fund manager is also eligible for a performance fee. A certain percentage of the fund profits is set aside as the performance fee. This usually ranges from 18% to 20% of the total fund profits.
Hurdle rates are used for computing the performance fees. Hurdle rates are calculated by comparing the fund performance with external standards. The external standard would include the standards established by the country’s apex financial regulatory institution. The fund manager would not receive a performance fee if the rate of fund return is less than the hurdle rate.
High water marks
This is another factor in addition to hurdle rates that goes in to determining the performance fees of the fund manager.