(HedgeCo.Net) In response to evolving market dynamics, nearly 44% of hedge funds are reportedly evaluating a reduction in their traditional “2 & 20” fee model. The Times According to a survey by IG Prime, competitive pressures, investor demands, and regulatory scrutiny are all pushing managers to rethink pricing. The Times
Key insights:
- Performance fatigue: Prolonged underperformance in many funds has made it harder to justify high carry (performance fees). The Times
- Competition: Newer funds and technology-driven managers are launching with more flexible, lower-fee structures, forcing legacy firms to respond. The Times
- Regulation: Some managers cited regulatory pressure as a factor: tighter oversight and higher costs (e.g., compliance, reporting) are compressing margins. The Times
Despite the trend, many funds are still holding onto legacy pricing: 74% of the surveyed firms still adhere to 2% management fee plus 20% performance fee. The Times
If fee reductions proceed broadly, it could mark a significant structural shift in the hedge fund business — one that may force firms to double down on performance, differentiation, or scaling to maintain profitability.