Hedge funds in the U.S. have raised the fees they charge clients to record levels despite trailing the performance of the stock market over the past year, according to a new report from U.S. investment bank Goldman Sachs (GS).
The management fees charged by established hedge funds in America rose in 2023 to their highest level since 2012 and are now in record territory, according to Goldman Sachs.
Most hedge funds charge clients what’s known as a “two and twenty.” That requires clients to pay an upfront management fee of 2% of the fund’s assets under management (AUM), and a fee of 20% of any profits that are generated by the fund over the course of a year.
The record fees charged by hedge funds come even though the $3.9 trillion U.S. industry underperformed the return of the stock market by an average of 9% last year, the worst result in nearly 30 years.
Hedge fund clients, which are predominantly institutional investors such as pensions and university endowments, told Goldman Sachs in a survey that, going forward, the performance of a hedge fund would need to surpass a certain threshold before the application of any fees.
About 15% of hedge fund clients said they plan to decrease their investments this year, while 31% said they would add more exposure to hedge funds on the belief that they will perform better in 2024.
Goldman Sachs tracks the global hedge fund industry and its latest report is based on 358 interviews conducted in December 2023 with hedge funds that collectively account for $1 trillion U.S. in AUM.