US - The California Public Employees' Retirement System (CalPERS) has reportedly criticized hedge fund fees for becoming too steep.
CalPERS chief investment officer Russell Read said many hedge funds charged too much without delivering high enough returns or low enough risk.
He said: “We have no problem paying high-performance fees for a manager’s selection, but we find taking on average market risk inherently unsatisfying.”
A CalPERS spokesman said the plan’s US $4.3bn in hedge fund investments generated a return of 13.4% for 2006.
That was slightly ahead of the average hedge fund return of 13% but just below the 13.6% return the Standard & Poor’s 500- stock index generated in 2006, according to reports.
The fee structures of asset management firms are a threat to their own survival, claimed an article in Watson Wyatt’s Global Investment Review 2007.
The article suggested asset managers should take steps to change their remuneration structures, which “tend to favour” themselves rather than their clients.
The four steps recommended included: aligning interests with both their clients and their employees; incentivising employees through “appropriately structured compensation”, preferably equity; co-investing alongside clients; and putting in place a “well-designed” performance fee.
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