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04 June 2024       Albourne

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Albourne has signed an Open Letter supporting the adoption of cash hurdles.

  • This Open Letter on Cash Hurdles to the Hedge Fund Industry has thus far been signed by over 30 Hedge Fund investors and consultants.
  • Albourne has been pushing for better alignment of interests on fees for many years; for more on this please see The Shape of Fees | Albourne.
  • Albourne has been actively reaching out to investors and consultants and continues to encourage others to sign this letter; for those interested please reach out to your Albourne contact.

Albourne remains committed to empowering our clients to maximize alignment of interests with the managers they invest with. Over the years, we have undertaken significant efforts to effect change in the industry to improve the level, transparency, and shape of fees.

Significant progress has been made, as much of the industry has adopted concepts such as the 1-or-30” fee structure* and some have implemented beta hurdles. However, most funds continue to charge performance fees on the fund’s absolute return – regardless of the fund’s beta.

As discussed in Albourne’s Preferred Fee Terms- Hedge Funds paper* to clients in 2017, we believe that performance fees should be paid only on alpha, accomplished through implementing a beta (or beta proxy) hurdle. Where a fund has no significant beta, we suggest a hard cash hurdle, representing the risk-free rate.

In our recent research on Hedge Funds and Rising Rates*, in which we analyze the degree to which different hedge fund strategies consistently capture the increase in rates, we also state clearly our recommendation that all investors should seek to negotiate cash hurdles.

We recognize that investors acting alone often struggle to engage GPs around this issue, often being told “no-one else is asking for this”. This ‘divide and conquer’ strategy is getting old, and we believe that presenting a unified voice will empower all investors when they raise this issue with their managers.

*These three papers are available to clients and prospective clients only on Albourne’s Insights Pages. Clients can access these documents on the Castle or use their Castle log in details to access the Insights links. Prospective clients can REQUEST ACCESS to Albourne’s Insights page; the Insights Page provides a small sample of the latest research blogs, films, webinar recordings and invites, papers and capabilities.