Wednesday, June 12, 2024

Leading hedge fund LPs call for cash hurdles in fees

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The Teacher Retirement System of Texas and more than 25 other major hedge fund allocators have demanded changes to industry-standard fee structures.

In an open letter co-signed by Albourne and two other leading consultants, the group call for the implementation of cash hurdles in incentive fee arrangements across the hedge fund industry.

“The long-term health of the industry is dependent on a healthy alignment of interests between GPs and LPs, and we believe incentive payments on true value-add fixes a misalignment that has been present in fee structures throughout the maturation of the hedge fund industry.”

They say the misalignment has become increasingly evident in recent years, as risk-free rates rise to mid-single digits, and a higher-for-longer rates outlook expected to persist.

“A hedge fund may collect significant incentive fees based solely on skill-less returns generated from short rebate, securities lending, unencumbered cash, etc. These returns are easily obtainable by LPs outside of a hedge fund structure for free. Earning cash returns is not the reason institutional LPs invest in hedge funds.”

The investors signing the letter were:

  • BCV Asset Management
  • Bimcor Inc
  • Brightwell Pensions
  • BW Gestão de Investimentos Ltda.
  • CDPQ
  • Credit Suisse Pension
  • Employees Retirement System of Texas
  • Fire & Police Pension Association of Colorado
  • FS Fiduciary Services LLC
  • GIC
  • Healthcare of Ontario Pension Plan Trust Fund
  • Indiana Public Retirement System
  • John D. and Catherine T. MacArthur Foundation
  • Kern County Employees’ Retirement Association
  • Korea Investment Management
  • Pragma Gestão de Patrimonio LTDA
  • Public Employees Retirement System of New Mexico
  • South Carolina Retirement System Investment Commission
  • Suva
  • Teacher Retirement System of Texas
  • Texas Permanent School Fund Corporation
  • Texas Treasury Safekeeping Trust Company
  • Trans-Canada Capital
  • UTIMCO (University of Texas/Texas A&M Investment Management Co.)
  • University of Toronto Asset Management Corporation
  • Utah Retirement Systems
  • Virginia Retirement System
  • West Virginia Investment Management Board
  • Wyoming Retirement System