Crystallization - The Hidden Dimension of Hedge Funds’ Fee Structure

Posted: 30 Nov 2013 Last revised: 29 Jul 2015

See all articles by Gert Elaut

Gert Elaut

Ghent University; KBC Asset Management

Michael Frömmel

Ghent University - Department of Financial Economics

John Sjödin

RPM Risk & Portfolio Management AB; Ghent University-Universiteit Gent - Department of Financial Economics

Date Written: November 29, 2013

Abstract

We investigate the implications of variations in the frequency with which hedge funds update their high-water mark on incentive fees paid by hedge fund investors. Using data on Commodity Trading Advisors (CTAs), we perform simulations and a bootstrap approach to analyse the effect. We find a statistically and economically significant effect of the crystallization frequency on the total fee load. Funds’ total fee load increases significantly as the crystallization frequency increases. Our findings indicate that the total fee load depends not only on the management fee and incentive fee, but also on the crystallization frequency set by the manager.

Keywords: Hedge fund, CTA, Incentive fee, Fee structure, Gross returns, Crystallization

JEL Classification: G11, G23

Suggested Citation

Elaut, Gert and Frömmel, Michael and Sjödin, John, Crystallization - The Hidden Dimension of Hedge Funds’ Fee Structure (November 29, 2013). Financial Analysts Journal, Vol. 71, No. 4, 2015. Available at SSRN: https://ssrn.com/abstract=2361455 or http://dx.doi.org/10.2139/ssrn.2361455

Gert Elaut (Contact Author)

Ghent University ( email )

Ghent, 9000
Belgium

KBC Asset Management ( email )

Havenlaan 6
Brussels
Belgium

Michael Frömmel

Ghent University - Department of Financial Economics ( email )

Sint-Pietersplein 5
Ghent, 9000
Belgium

John Sjödin

RPM Risk & Portfolio Management AB ( email )

Norrmalmstorg 16
Stockholm, 111 46
Sweden

HOME PAGE: http://www.rpm.se

Ghent University-Universiteit Gent - Department of Financial Economics ( email )

Ghent, 9000
Belgium

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