What CTA fee structure you like the most?

WOW, Now we have 6 voters voted for:

1. 5%/0% --- only 5% management fee, no incentive fee.

what are your mainly reasons to vote for 5/0 option? Please explain. Thanks.

 

Incentive fees are, in my humble opinion, proof of managers ability to generate alpha.

Also from investor´s point of view incentive fees are a kind of barometer on manager`s self confidence into own ability to outperform benchmarks - and if I may add - to outperform "significantly" !

Prerequisite :
We´re not talking about investors looking for risk-adjusted returns. Pension funds, insurance companies and others => total different story and objectives !

 

Pension funds, insurance companies and others => total different story and objectives !



Hi ASusilovic,

would you mind to describe what are the differences?

Thanks.

 

Any more voters? Please vote.

 

In short :

Pension funds, insurance companies and others looking for "risk-adjusted" returns whereas individual investors are more interested in total/absolute returns.

This pretty up-to-date piece of paper gives you an introduction to the objectives of pension funds =>

To what extent and why are pension funds investing in hedge funds?

What is driving these increased weightings? Following a period of poor performance (and
consequent underfunding) after the collapse of equity markets around the millennium, many pension funds
adopted a new way of investing – which increasing involves investment in hedge funds for two main,
interconnected reasons. On the one hand, many pension funds are attempting to match assets and liabilities
more closely to avoid under-funding in future (a trend which is being supported by regulatory and
accounting changes). Hedge funds can be used to manage, reduce and indeed hedge such liability risks.
Hedge funds also allow for risk reduction via increased diversification away from traditional equity market
holdings (via holding in commodities, property etc). On the other hand, this asset liability matching is
provoking a move into bonds which, coupled with the low-interest rate environment, means that pension
funds are also been forced to think harder about how to generate return. Rather than holding traditional
equity portfolios, generating most of their return from ‘beta’ or market return (which can be easily and
cheaply obtained via passive, index products), pension funds are increasingly rethinking their investment
approach and searching for ‘alpha’ or excess return over the market. More absolute return mandates are
being given to fund mangers, who are also allowed to go short as well as long. In addition, pension funds
are progressively more prepared to invest in a broader range of products – from emerging market debt or
equity, high yield fixed income, property, commodities, illiquid investments etc. Hedge funds are
increasingly used as instruments to facilitate this new investment approach.

Source :

OECD Working Papers on Insurance
and Private Pensions No. 13 - Pension Fund Investment in
Hedge Funds, Fiona Stewart
September 2007

http://www.oecd.org/dataoecd/4/46/39368369.pdf

 

Very interesting article. Thanks, ASusilovic.

 

We have 7 voters voted for:
1. 5%/0% --- only 5% management fee, no incentive fee.

Can you share why are the reasons you prefer 5/0?

 

So more people prefer option 3:

0%/25% --- 0% management fee, 25% incentive fee with High-Walter-Mark and no hurdle rate.

What are the main reasons?