Everybody has living cost. That's the difference. The clients cover it for you while you gamble with their money.
here is a recent article on the subject of fees dropping http://fortune.com/2016/09/15/hedge-fund-fees-cut/
And emerging managers without super-compelling track records sometimes take 0&0 these days just to get some AUM points on the board to establish credibility.
@ElSegundo @gkishot @algofy @xandman OK So a bit more details (this is my opinion from my experience, not The Bible). Fee structure depends on who you talk to and what size the ticket is. - Yes some funds will advertise 2/25 or 3/30 or whatever, but they won't have serious money paying that. A lot of funds advertise random fees and end up charging much less, just look at their financials vs. AUM and you should have an average management fee %. - I've never seen a deal of 0 / 5 for newcomers and I'm personally invested in 4 CTAs that have less than 10m$ in AUM, including 1 that has < 2m$. I have seen deals of 0 / 10 from big names investors. Maybe some FoF invest in early stage newcomers and get 0 / 5 as a business model, but this can't be considered as an industry standard. In Europe some big pension names will pay 0 / 10 - LIBOR 500bps, or something similar, but the ticket usually starts at 25-50m$ and you often raise 3x that amount from smaller pension players within 1 month, who simply follow big names and those guys will pay 1/20 if not 2/20, so it's just a branding effort, not really a fee rebate. - @haroldg I doubt managers who get 0/0 to get AUM will succeed. Unfortunately the hedge fund / CTA game is a lot about marketing and how many people / what people you know when you start off. If you don't know ANYONE and are forced to take 0/0 to grow, I doubt you can reach a sustainable size. I know a few guys who have 6-8Bn$ and probably won't beat the market over the long run, also know 2 managers who have done great returns over 20 years and have < 100m$. - While I have witnessed the above in London, New York, Chicago, Los Angeles and Miami, it is true that you tend to find more competitive fees in the US. This is also due to the fact that you find much more early money in the US. Under 100m$ in Europe you cannot talk to anyone, whereas you can talk to at least 10 people with serious money in the US (when you run a futures/CTA sub-100m fund). This is excluding 'friends and family' and maybe a very very few family offices that will be treated as friends and family. - Pension funds in the US pay roughly the same as in Europe. I work in a fund that is > 5Bn$ and I see tickets of 200m$ paying 1 / 20. - I think an important point is whether you are a boutique or an institution-looking firm. As a boutique firm (1 guy or 1 guy 2 assistants in a garage), you will tend to have lower management fee and less leverage to negotiate. So maybe @algofy your comment comes from the fact that in Chicago you can find a lot more niche / boutique guys (not saying it's bad). Top of my head I know 4 big names in Chicago that charge 1 / 20 and don't discuss fees. - Australia has 4 major hedge funds, 2 of them were charging about 2 / 20 on 8% of volatility until not so long ago with > 1Bn$ in aum. - Media: when you read stuff on the FT or Fortune about fees, keep in mind that 90% of the hedge fund industry is plain and dumb stocks or fixed-income funds. You can't really compare an actual hedge fund with a L/S Equity fund, especially if you're more in the managed futures / CTA / high-frequency world.
You can "doubt" all you want, but those are the facts on the ground, as perceived by the managers themselves.