Money for Nothing? Understanding Variation in Reported Hedge Fund Fees

Abstract

We analyze the determinants of hedge fund management and incentive fees in a large consolidated hedge fund dataset. We detect time-series variation in fees by concentrating our attention on fund launches, and conditioning fees at launch on fund family characteristics. Larger and better performing fund families launch high fee funds. Funds with high management fees at launch do not perform any differently from low management fee funds, though funds with high incentive fees marginally outperform. Our results are robust to the use of an interval regression technique to uncover the underlying continuous distribution of fees from the discrete reported fees.

Keywords: hedge funds, fees, performance, management company, fund family

JEL Classification: D40, G20, G23