Elemental Capital Hikes Performance Fee To 40% As Hedge Fund Industry Struggles

LPs pulled money from hedge funds at an alarming rate last year after a stretch of abysmal returns. Yet, apparently, the highest-performing funds have no reason to be worried. With the Fed about to phase in QE4, investors are scrambling for allocations at the best-performing funds, and Elemental Capital, a macro fund that has averaged annual returns north of 20% since 2005, has decided it’s going to buck the trend of falling fees and hike them, instead.

According to the FT, the fund’s motive isn’t pure greed: It also wants to shake out some investors and reduce its AUM, allowing it to shift its investing strategy to focus on smaller, less liquid markets. The Va.-based fund, which boasts a stunning $18 billion AUM, was founded by Jeffrey Talpins, a former bond trader at Goldman and Citi who had emerged as an industry star. He was already charging a 2.5% annual fee and a 25% performance fee. That’s far higher than the industry average, which has sunk below the traditional ‘2-and-20’ threshold (charging 2% management fee along with a 20% management fee).

The fund is planning to hike its performance fee to 40%, and lower its management fee to 2%.

The $18 billion hedge fund founded by Jeffrey Talpins, a former bond trader at Goldman Sachs and Citi who has emerged as one of the industry’s brightest stars, already charges a 2.5%annual management fee and 25% of gains, far higher than the industry average.

“While a seemingly bleak snapshot, a small cohort of funds are prospering,” said Mark Connors, global head of risk advisory on Credit Suisse’s hedge fund servicing team. “Some have even been able to maintain pricing power, distancing themselves even further from the average manager.”

Over the summer, Elemental made some changes at the portfolio-management level, shuttering its portfolio management program of quasi-independent trading centers. But the fund is up 6% on the year through June.

As the FT reminds us, even mediocre performing hedge funds can amass huge profits with sub-part performance (though there have been some embarrassing blowups among bold faced names). But the firms that have a track record of success are closing more quickly than investors can find their way in, it’s just the latest sign that investors still have more cash on their hands than they know what to do with.

via ZeroHedge News https://ift.tt/2yqHaK3 Tyler Durden

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