An Equitable Structure for Hedge Fund Incentive Fees

Publication Type

Journal Article

Publication Date

9-2004

Abstract

There are a variety of problems in fee structures between hedge fund managers and their clients. Examples here illustrate issues such as the free rider problem and the “claw-back” syndrome that can arise in fee contracts. A different “equalization” process that is both equitable and transparent to investors would involve multiportfolios that give any fund a structure similar to that of a partnership organization, and overcomes the current drawbacks in contracts. Application of this structure should improve fund manager and investor compatibility.

Keywords

Performance Fee, Equalisation, Hedge Funds, Free-rider, Clawback, Alernative Investment, Multi-porfolio Approach

Discipline

Finance and Financial Management

Research Areas

Quantitative Finance

Publication

Journal of Investing

Volume

13

Issue

3

First Page

31

Last Page

43

ISSN

1068-0896

Identifier

10.3905/joi.2004.434549

Publisher

Institutional Investor Inc

Additional URL

https://doi.org/10.3905/joi.2004.434549

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