|September 13, 2012
Benedicte Gravrand, Opalesque Geneva:
Anric Blatt, Chairman of Global Fund Exchange, an investment management group, told Opalesque that he would drastically reduce his fees for a couple of month.
All his funds are multi-manager funds: either funds of managed accounts, hybrids or funds of hedge funds. They focus on investments in clean energy, water, agriculture, energy and natural resources.
Investors who invest up to $100m in any of the funds within the next two dealing dates (September 28 and October 31) will be charged a flat management fee of 0.75% per annum, and all performance fees will be waived for three years, he said.
Global Fund Exchange came into the hedge fund industry with the idea to make difference. “We saw a massive gap in the market place between institutional investors putting capital to work and essentially the most significant asset classes that are going to drive future human growth, that is energy, water, agriculture, clean energy, natural resources, carbon trading and so on,” Blatt explained from his New York offices.
He found by speaking with institutional clients that although the latter love the funds’ themes, the full transparency and the weekly estimates his group supplies, they are not so keen on the “fees on top of fees.” This is becoming a classic challenge in the world of funds of funds, as investors are increasingly reluctant to bear the double layer of fees (the underlying managers’ management and performance fees, as well as those of their fund of funds manager.)
So Global Fund Exchange (GFE) had a very close look at the effect of fees on performance and found that they agree with institutional investors. They worked out that removing the last layer of performance fees (their own, not the underlying managers’) and lowering management fees would create a win-win situation; the investors would only have one layer of performance fees (usually around 20% in the world of hedge funds), and GFE would gain more assets. And instead of going through third-party marketers – who must be paid fees – GFE are now making direct offers.
Here is as brief overview of the funds of funds in question:
– The Aquaterra fund, a portfolio of 8-10 specialist managers investing in agriculture, water and other scarce natural resources. This Cayman-domiciled feeder fund has returned 48% since its April ’08 inception. It was up 2.47% in July and up 3.52% YTD (we wrote about it last year).
– The Earth Wind & Fire (EWF) Fund is global macro, multi-strategy, multi-manager investment fund focusing on the future of energy through eight segregated portfolios: clean energy, water, agriculture, energy, natural resources, carbon, systematic trading and hedging. It has returned 47% since its January’07 inception. It is up 0.59% in July, down 1.38% YTD.
– The EWF Pure Water Fund, a long-biased strategy focused on specialist water equity managers. The Cayman-domiciled fund has returned 7.44% since its January ’07 inception. It is up 1.20% in July, up 0.51% YTD.
– The EWF Energy Fund gathers highly experienced energy managers. It has returned 45% since its January ’07 inception. It was down 1.37% in July, down 2.25% YTD.
– The EWF Hybrid Energy Fund comprises a mixture of traditional energy and clean energy investments. It has returned 36.8% since its January ’07 inception. It is down 0.14% in July, up 1.89% YTD.
The HFRI Fund of Funds Composite Index is up 2.40% YTD (to August) and the HFRI Energy/Basic Materials Index down 5.09% YTD.
New, improved model needed now
In the last few years – since ’08 – investors, faced with sometimes lukewarm performance from their hedge fund investments, have been trying to negotiate or re-negotiate the traditionally high 2-and-20 fees that are eating into the returns. Because of tricky performance and the double layer of fees, funds of funds have seemed a lot less attractive to investors and have been suffering as a consequence.
The fee re-negotiation is starting to work among single manager funds, as Preqin, a research house, recently confirmed: “The current mean performance fee for single-manager hedge funds is 18.69%, whereas in 2011 this figure stood at a higher 19.20%.” (see our article here).
Funds of funds need to follow suit. Negotiating fees with underlying managers, lowering some of the costs, lowering their own fees, waiving some, and redistributing retrocessions would attract a lot more assets and could improve the uncertain prospects of this otherwise valuable business model.
This article was published on Opalesque and can be accessed here:
Opalesque Exclusive: Commodities fund of hedge funds manager cuts second layer of fees