New York: Two years ago, German investment advisor Dieter Kaiser had to board a plane bound for New York to speak with senior US hedge fund executives.
These days, those same managers visit Kaiser, the director of investment management for Feri Institutional Advisers GmbH, at his office in Bad Homburg, about 10 miles from Frankfurt.
“We’re seeing hedge fund managers here, and they’re wearing ties now,” said Kaiser, 31, whose firm has allocated about $1 billion (Rs5,030 crore) to private funds for its clients.
Hedge funds are paying more attention to customers after record investment losses and withdrawals cut industry assets 37% to $1.2 trillion last year. Accustomed to dictating their conditions for accepting money, managers are now hearing from investors demanding lower fees, more information about holdings, access to segregated accounts and easier terms for leaving funds.
The $174 billion California Public Employees’ Retirement System last month told 26 hedge funds, including New York-based Och-Ziff Capital Management Group Llc and Atticus Capital Lp, that changes are needed.
Sacramento, California-based Calpers, the nation’s largest public pension fund, said it wants separate accounts and the ability to get some fees returned if a manager posts losses after a winning year.
Utah Retirement Systems, the Salt Lake City-based pension fund that covers state employees, released new guidelines for hedge fund terms earlier this year.
The $16 billion fund wants firms to cut management fees, traditionally 2% of client assets, as their holdings grow, and to provide data such as weekly return estimates and a scorecard of winning and losing investments.
For a while there, managers forgot that it was our money, said Brad Alford, head of Alpha Capital Management Llc in Atlanta, which selects hedge funds for clients. Now investors are fighting back.
Funds may have received redemption requests in the first quarter for as much as 13% of industry assets, according to estimates by Huw van Steenis, a financial-services analyst at Morgan Stanley in London. Withdrawals may reach 20% for the year.
The defections follow a year in which managers lost an average of 19%, according to data compiled by Hedge Fund Research Inc., the most since the Chicago-based firm started tracking the industry in 1990. Even though that was half the 38% decline of the Standard and Poor’s 500 index, clients count on hedge funds to make money whether markets rise or fall.
At the same time, some managers limited investors’ ability to take money out. More than 18% of all hedge-fund assets, managed by 5% of firms, were subject to some sort of withdrawal restriction last year, according to Peter Douglas, principal of Singapore-based consultant GFIA Pte.
Some managers are responding.
Paul Tudor Jones, who runs the $9 billion Tudor BVI Global Fund Ltd in Greenwich, Connecticut, told investors last month he would repeal limits on quarterly withdrawals. Currently no more than 25% of assets can leave the fund in any given quarter.
Brett Barth, a partner at New York-based BBR Partners, which has more than $1 billion with hedge funds, has been able to persuade multiple managers to let him invest this year with 2008’s high water mark. That means he won’t have to pay a performance fee, typically 20% of gains, until last year’s losses are recouped. He declined to name the funds.
Managers are also providing more timely and detailed reports on trading.
“It’s no longer a month after quarter end with three paragraphs,” he said. Now they tell us more about what they own and what’s been driving performance.