| Investors with cash to deploy are calling the shots | | | | times to manage a 10 billion fund." |
| for private equity and hedge funds desperate to | | | | Both industries are also -- often reluctantly -- |
| win back business, and only some of the top | | | | having to offer clients so-called 'managed |
| firms are now able to dictate terms again. | | | | accounts' -- separate accounts where the client |
| Funds are having to negotiate on the level of the | | | | owns the assets, rather than units in a fund, and |
| lucrative fees that both industries were used to | | | | can therefore sell out whenever they wish. |
| charging, or give clients so-called managed | | | | Investors are particularly wary after many funds |
| accounts that give them more control and | | | | stopped them getting their money back during |
| greater visibility over their assets. | | | | the credit crisis, citing highly illiquid markets, just |
| "If you have a relatively open chequebook and | | | | when they wanted to sell most. |
| want to negotiate, you can probably achieve | | | | Many are also worried about a repeat of the $65 |
| something," George Anson, managing director of | | | | billion fraud by U.S. financier Bernard Madoff, and |
| HarbourVest Partners, which runs more than $33 | | | | want greater visibility over what they actually |
| billion in funds of private equity funds, told the | | | | own. |
| Reuters Hedge Fund and Private Equity Summit in | | | | "Certain models are dead or have got substantially |
| London. | | | | hurt, (such as the model of) ... one big fund, |
| "I think we'll see more people demand separate | | | | everybody comes into my fund, I've got 2 and |
| managed accounts," he said. "One of the areas | | | | 20 fees," said Chris Chris Goekjian, chief |
| investors will pay a lot more attention to is | | | | investment officer at Cheyne Capital. |
| (negotiating about) transaction fees." | | | | BIGGER SEEN AS BETTER |
| Investors pulled a net $330 billion from hedge | | | | Nevertheless, some of the bigger funds that |
| funds over the year to June 2009, according to | | | | performed well during the crisis are finding it |
| Hedge Fund Research, and while returns of 20 | | | | easier to attract new money and can often take |
| percent last year have helped attract back | | | | client assets on their terms. |
| investors, fundraising is much tougher. | | | | "If you're Brevan Howard or Paul Tudor Jones, I |
| Just $13.8 billion net was invested into hedge | | | | don't think you're going to have trouble raising |
| funds during the fourth quarter of last year. | | | | your marginal dollar," said Cheyne's Goekjian. |
| Meanwhile, private equity fundraising hit a | | | | More than half of net inflows in the fourth quarter |
| five-year low in 2009, according to data from | | | | went to firms with more than $5 billion under |
| consultancy Preqin, with the $246 billion raised | | | | management, according to Hedge Fund Research, |
| down 61 percent on the previous year. | | | | as investors backed firms they perceived to be |
| "The reality is investors have bigger clout, | | | | safer. |
| fundraising is more difficult for those funds that | | | | Apax's Wilson said top-performing private equity |
| need to raise capital, and it ends up being a | | | | firms would retain a strong position when talking |
| negotiation," said Richard Wilson, partner at Apax | | | | to investors about fees. |
| and chairman of the European Venture Capital | | | | "You will find the top quartile will have a more |
| Association. | | | | robust position vis-a-vis investors in negotiations, |
| DEAD MODEL | | | | as opposed to the guys who are at the other |
| Hedge funds and private equity have typically | | | | end of the scale," he said. |
| charged 2 percent annual management fees and | | | | London-based hedge fund Toscafund, for instance, |
| 20 percent performance fees. While Hedge Fund | | | | is able to turn away fund of funds investors -- a |
| Research shows fees are gradually on their way | | | | luxury many hedge funds could only dream of. |
| down, some feel buyout investors have not | | | | "There are those who know they should not |
| pushed hard enough for cuts in management fees. | | | | bother to ring me now," said Martin Hughes, chief |
| "It's a matter of permanent puzzlement to me | | | | executive of the firm, which runs $2 billion in |
| that investors have never taken much of an | | | | assets and which is seeing net inflows into its |
| interest in dealing with fees," said Better Capital | | | | funds, helped by gains of more than 100 percent |
| (BCAP.L) founder Jon Moulton. | | | | last year. |
| "It may well be fair to say you need something | | | | "(I've got) no interest at all. They were appalling. |
| like 1 and 3/4 percent to manage a 100 million | | | | They come out at the bottom and come in at |
| fund, you do not need ten times the amount (of | | | | the top. |
| money) to manage a billion fund, let alone 100 | | | | |