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15 Jan 2009

December Investor Survey finds Managment fees too High

When surveyed about what they think about fee levels and value for money offered by investment managers, investors believe that managment fees are too high.

Two surveys were conducted by bfinance in December, questioning institutional investors and asset managers from Europe, North America, and the Gulf Region.

"The results indicate that pension funds believe investment management fees are too high and need to come down, and a majority of managers seem to agree." David Vafai, CEO of bfinance commented.

With regards to hedge fund and fund of hedge fund fee levels, pension funds generally feel that all fees need to be reduced. 77% of respondents state their first priority is for lower base fees, followed by 52% who indicate their desire for performance fees to be reduced and for there to be an increase in hurdle rates. Also, 65% of investors say that these performance fees should be calculated over a four or five year period.

"Clearly, investors are still willing to pay performance fees to reward long-term skill but are no longer willing to pay active fees for beta or for 'luck'", commented Olivier Cassin, Managing Director, Research and Development for bfinance.

Hedge fund managers agree that fees would likely go down and indicate they expect the median level for base fees for FoHFs to decline 9% to 95bps and for the median level of performance fees for hedge funds to decline 25% to 13%.

Vafai concluded, "Although the study indicates disenchantment with the industry in general, and disenchantment with Fund of Hedge Funds and GTAA managers comes out particularly clearly, the study also rather paradoxically suggests that allocations to FoHFs, as well GTAA, Infrastructure, Real Estate and Private Equity FoFs are set to increase in the future. This confirms the results of our recent study on the impact of the crisis on pension fund asset allocation"