GLOBAL - Hedge fund managers have stepped up to defend the fees they charge pension funds.
It came after Wilshire Associates managing director and senior consultant, Michael Schlachter, criticised high hedge fund fees.
“I think hedge fund fees are absurdly high but they have gotten where they are because clients are willing to pay them. The minute clients stop being willing to pay these absurdly high fees, these fees will come down to more rational levels,” said Schlachter.
However, hedge fund managers said fees were justifiable because returns were so high.
Andrew Lodge, managing director of Nedgroup Investments , which offers institutional investors a range of fund of funds investments, said: “The manager needs to earn money but it should be aligned with performance, this means they need to show they are producing good returns.”
Lodge said high fees are justified through high operational costs, added value and specialist expertise that pension funds do not have.
“Hedge funds are more ethical than long-only investing as funds close when they have enough money - you never get long-only funds closing to new assets,” said Lodge.
Philippe Bonnefoy, principal of Cedar Partners which provides hedge fund of funds investments, said: “If hedge funds offered little value the fees would not be so high. If managers are not performing they should not be charging high fees”.
“The best managers need to be judged on net return to investor, not on fees,” added Bonnefoy.
A number of pension schemes have been prompted to lock in gains with a move into bonds after the estimated deficit across FTSE 100 DB pension schemes improved by £36bn, over the 12 months ending 30 June last year, JLT Employment Benefits found.
HM Treasury has agreed in principle to give NEST a £329m contingent liability guarantee in the event of the master trust's wind up or closure.
AMP Capital has set up a dedicated team to help institutional investors, including pension funds, invest in infrastructure through direct equity allocations.