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Marex Prime Services recently convened a breakfast roundtable with McDermott Will & Schulte to explore the evolving landscape of expense allocation among hedge fund managers.
Led by Josh Dambacher, the session drew on insights from McDermott’s extensive work with managers across the US, Europe and Asia.
A key theme emerged regarding the contrasting approaches of US and European managers. US managers tend to charge a wider array of expenses to the fund, including market data and technology costs, while many European counterparts absorb these costs at the management company level.
Investor scrutiny and expense categories
Investors are increasingly questioning specific expense categories. While investment-related travel is often charged to funds, market data and technology costs remain under review.
The session noted that investor focus typically centres on net returns and headline fees rather than a detailed examination of operating expenses.
Dambacher emphasised the significance of fund documentation and ongoing disclosure. Since 2021, many managers have revisited their fund documents to clarify expense language and ensure alignment with current practices.
The discussion also highlighted the distinction between what documents permit and historical charging practices.
Emerging themes: Alpha capture and AI
The roundtable also touched on two adjacent themes: alpha capture through trading data and the implications of AI on expenses and data handling.
As managers navigate these evolving considerations, the importance of aligning documentation with operational practices remains paramount.