Posted By Global Banking and Finance Review
Posted on January 20, 2025
By Nell Mackenzie
LONDON (Reuters) - Hedge funds have charged their investors $1.8 trillion in fees from 1969 to the end of December 2024, according to data from hedge fund investor LCH Investments on Monday.
Over the past 55 years, hedge funds have kept roughly half of the money they make from trading profits, according to LCH Investments, an investor in hedge funds which is part of Edmond de Rothschild.
The top twenty performing hedge funds charge higher fees, but deliver better returns and have fewer outflows, the report said. This group took less, around 34.3% of their gains before fees over this period, according to the data.
"When hedge funds make losses, the performance fee paid on the way up is not refunded. So if the fund then closes down, or investors redeem before the fund recovers the losses, investors end up incurring disproportionately high fees," said Rick Sopher, chairman of LCH Investments on a phone call with Reuters.
Last year, 326 hedge funds closed in the first three quarters, according to hedge fund research firm HFR.
Smaller managers struggle to recover poor performance and investor outflows over time as losses one year must be made up the next.
“What comes out of our research is that the fees paid by investors as a proportion of hedge fund gains are very high,” said Brad Amiee, head of research at LCH Investments.
The top 20 best performing hedge fund managers returned $93.7 billion net of fees in 2024, said the report.
Multi-strategy hedge fund, D.E. Shaw, saw its best year ever on this list, returning the highest amount, $11.1 billion, to investors after fees, said LCH.
British hedge fund Marshall Wace posted its first appearance in the top twenty, returning $4.5 billion to its investors.
D.E. Shaw and Marshall Wace declined to comment.
Sopher said that LCH as a fund would close sometime later this year but that Edmond de Rothschild would continue to invest in hedge funds through other funds within the Group.
LCH, the world’s first fund of hedge funds, was founded in 1969 and returned an average of roughly 10% a year since inception.
(Reporting by Nell Mackenzie; Editing by Amanda Cooper and Louise Heavens)
