Tag Archives: Performance Fee

Planning to invest in Hedge funds?

15 Feb

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.

Withdrawal Fee

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.

Management Fee

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.

Performance Fee

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

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.

Advertisements