Are 2 & 20 Facing Extinction?

Relatively weak returns since the financial crisis and increasing institutional investment in domestic and offshore hedge funds (estimated now at almost 60% of hedge fund assets under management) have exerted substantial downward pressure on the traditional 2&20 hedge fund fee structure. According to a recent survey by Preqin, mean annual management fees for hedge funds have fallen to 1.6% and incentive fees to 18.69%, while Hedge Fund Research reports even lower industry averages of 1.58% and 17.04%. If hedge fund returns don’t revert to their pre-crisis, double-digit levels, and pension plans, endowments & foundations, insurance companies and sovereign wealth funds continue to pour money into hedge funds as expected, hedge fund management fees will inexorably gravitate towards 1.5% and 15%.