Hidden Costs in Hedge Fund Performance Fee Payment Frequencies

23 Pages Posted: 12 Feb 2018 Last revised: 15 Mar 2018

See all articles by Gert Elaut

Gert Elaut

Ghent University; KBC Asset Management

Kathryn Kaminski

Massachusetts Institute of Technology (MIT)

Date Written: March 12, 2018

Abstract

Hedge funds calculate and pay performance fees at different frequencies: daily, monthly, quarterly or annually. Using data from a public hedge fund database, we document considerable variation in hedge funds’ performance fee payment frequencies. Despite the higher costs associated with more frequent performance fee payments, funds with more frequent performance fee payments were not associated with lower management fees. Liquid and more volatile hedge fund categories also tend to have more frequent payment frequencies. To estimate hidden costs due to more frequent performance fee payment, we propose a simple linear model including the management fee, performance fee, and strategy volatility.

Keywords: Crystallization Frequency, Payment Practices, Performance Fees, Hedge Funds

JEL Classification: G11, G12, G13, G23

Suggested Citation

Elaut, Gert and Kaminski, Kathryn, Hidden Costs in Hedge Fund Performance Fee Payment Frequencies (March 12, 2018). Available at SSRN: https://ssrn.com/abstract=3118946 or http://dx.doi.org/10.2139/ssrn.3118946

Gert Elaut

Ghent University ( email )

Ghent, 9000
Belgium

KBC Asset Management ( email )

Havenlaan 6
Brussels
Belgium

Kathryn Kaminski (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

50 Memorial Drive
Cambridge, MA 02139-4307
United States

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