Abstract

http://ssrn.com/abstract=1659275
 
 

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The Dynamics of Hedge Fund Fees


Prachi Deuskar


Indian School of Business

Zhi Jay Wang


University of Oregon - Charles H. Lundquist School of Business

Youchang Wu


University of Wisconsin - Madison - Department of Finance, Investment and Banking

Quoc H. Nguyen


University of Illinois at Urbana-Champaign

March 15, 2103


Abstract:     
In contrast to the perception of a common 2/20 fee structure, we find considerable cross-sectional and time series variations in hedge fund fees using a large panel data set. Fund family characteristics and prior performance play an important role in fee determination. New fund families are likely to charge at- or above-median fees. Initial fees of funds introduced by an existing family are positively related to the prior performance of the family as well as of the investment strategy they follow. Furthermore, management fees are dynamically adjusted in response to past fund performance. Funds that increase management fee more aggressively experience a bigger drop in subsequent money inflows, and are more likely to maintain their good performance. This suggests that fee increases, which typically apply only to new investors, may benefit existing investors by mitigating diseconomies of scale.

Number of Pages in PDF File: 42

Keywords: Hedge Funds, Fees, Incentives

JEL Classification: G23, G29

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Date posted: August 17, 2010 ; Last revised: November 14, 2013

Suggested Citation

Deuskar, Prachi and Wang, Zhi Jay and Wu, Youchang and Nguyen, Quoc H., The Dynamics of Hedge Fund Fees (March 15, 2103). Available at SSRN: http://ssrn.com/abstract=1659275 or http://dx.doi.org/10.2139/ssrn.1659275

Contact Information

Prachi Deuskar
Indian School of Business ( email )
Hyderabad, Gachibowli 500 019
India
Zhi Jay Wang (Contact Author)
University of Oregon - Charles H. Lundquist School of Business ( email )
1208 University of Oregon
Eugene, OR 97403-1208
United States
Youchang Wu
University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )
975 University Avenue
Madison, WI 53706
United States
Quoc H. Nguyen
University of Illinois at Urbana-Champaign ( email )
601 E John St
Champaign, IL 61820
United States
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