Open Letter on Cash Hurdles Update - August 2024

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.

The Head of B2Y – Fee & Liquidity, Nicolas Stylianou, alongside Fee & Liquidity Analysts Andria Mosfili and Charis Koumenidou, launched the FeeController, a new dedicated portal for clients. Albourne’s Fee Controller is a web-based tool powered by Albourne’s FeeMometerTM, a portal for users of the FeeConciliation service. It utilizes Albourne’s proprietary technology to offer real time access to analytics and tools which are subject to Albourne’s verifications and controls. The portal focuses on fee consolidation, aggregation, validation, benchmarking and reporting, both at the fund level and portfolio level. Albourne has been in the fee world from 2009 and has had a dedicated fee team since 2014. Throughout these years we have been very active in the industry introducing various concepts, tools and services. For example, during 2014 we launched the FeeMometerTM, a tool that allows clients to study the effect of different fee structures and different return environments. We have also helped introduce various concepts from the Shape of Fees in 2013 to the 1-or-30 structure in 2017. We believe that Albourne’s FeeController enables: Robust Data: There are internal controls for processing and recording the data. The team reviews and cross checks on whether the data make sense in relation to the overall fund performance. A Holistic View: The metrics and charts help simplify complex themes around fees. Resources can be utilized to present the true impact of fees against portfolio performance (e.g., in board meetings and trainings). Real Time Reporting: The fee dashboard gives relevant data points and flexibility in fee reporting. Clients have the option to create customized real time reporting across their portfolios. Fee Controller is available to clients who are signed up to Albourne’s FeeConciliation services. Albourne’s FeeConciliation service can help validate client fees and provide custom reporting at the client, sub-portfolio and individual fund level. For any questions, please email: contactus@albourne.com. Albourne offers Fee Aggregation and Fee Reconciliation services for both Hedge Funds and Private Markets.