Gotham latest to look at linking more hedge fund pay to performance

Gotham Neutral Strategies hedge fund would charge the greater of a 1% management fee or 30% of returns that exceed the fund's benchmark.

Feb 22, 2017 @ 12:20 pm

By Bloomberg News

Gotham Asset Management, the $6 billion money manager run by Joel Greenblatt and Robert Goldstein, is exploring a new fee structure for its hedge funds, one of a group of firms tying more of their pay to performance.

The firm is in talks with some investors for its Gotham Neutral Strategies hedge fund about charging one fee: the greater of a 1% management fee or 30% of returns that exceed the fund's benchmark, according to two people familiar with the matter. The equity fund currently charges 1.5% of assets in management fees and 20% of profits, one of the people said.

Hedge funds have been trimming and altering their fees amid a backlash over lackluster returns and criticism that the standard model of charging a 2% management fee and a 20% incentive fee is too expensive. Most hedge funds charge investors too much for the performance they deliver, Mr. Greenblatt, who is Gotham's co-chief investment officer, told Bloomberg Television in a May 2014 interview.

If the new fee structure is adopted, Gotham would join Hong Kong-based hedge fund Myriad Asset Management and others in moving to the 1-or-30 model, which has been championed by investors including the Teacher Retirement System of Texas.

As of mid-February, at least 16 multi-billion-dollar hedge funds worldwide are either in the process of implementing or have implemented the 1-or-30 fee structure that was introduced to the industry in the fourth quarter of 2016, Jonathan Koerner of Albourne Partners said in a telephone interview on Feb. 16.

"The objective of '1 or 30' is to more consistently ensure that the investor retains 70% of alpha generated for its investment in a hedge fund," Mr. Koerner wrote in a white paper published in December by Albourne, which advises clients on more than $400 billion of alternative investments globally. The management fees charged in a year when the fund underperforms the benchmarks are deducted from the following year's performance fee payment, making it, in effect, a prepaid performance fee credit, he said last month.

The Gotham Neutral Strategies fund gained 7.5% last year, according to another person familiar with the matter. The HFRI Market Neutral Index was up about 2% in that time. Since inception in July 2009, the fund has gained an annualized 7%.

The Gotham Penguin Fund, which wagers on and against U.S. stocks, gained 25 % last year, according to one of the people familiar with the matter, compared with a 5.4% rise in the HFRI Equity Hedge Index. Since inception in 2013, the fund has returned an annualized 15%.

A representative for the firm declined to comment.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Financial health of advisory firms is excellent. Or is it?

Deputy editor Bob Hordt and senior columnist Jeff Benjamin discuss the fact that double-digit growth in revenue and assets doesn't necessarily spell a rosy future.

Latest news & opinion

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print