February 28, 2017 / 7:11 PM / in 9 months

Pared Tudor fees still in hedge-fund royalty zone

NEW YORK (Reuters Breakingviews) - Even hedge-fund royalty isn’t immune to weak performance. Paul Tudor Jones’ $10 billion firm, Tudor Investment, is cutting fees to 1.75 percent of assets and 20 percent of gains, according to the Wall Street Journal. That’s finally inside the archetypal “2-and-20,” but it’s still above the industry average.

Paul Tudor Jones, founder and chief investment officer of Tudor Investment Corporation, speaks at the Sohn Investment Conference in New York, May 5, 2014. REUTERS/Eduardo Munoz

The typical cut taken by hedge funds is slowly shrinking. Newer funds were charging 1.5 percent a year for management and taking about 19 percent in performance fees as of last September, according to Preqin. For many investors, however, that remains far too big a payday in comparison to the scant returns they have received.

The average fund delivered a bit over 5 percent net of fees in 2016, according to Hedge Fund Research. That was an improvement over a loss of 1 percent in 2015 and a slim 3 percent gain in 2014. But it’s uninspiring to pension funds, endowments and other investors. Though it’s not a direct comparison, they know that a Vanguard fund tracking the S&P 500 Index returned 12 percent last year and an average 9 percent over the past three – net of fees of just 0.02 percent.

This is one reason why Californian pension giant CalPERS dumped its hedge-fund portfolio. It’s why some old-timers have closed shop while others, including Brevan Howard, have cut fees drastically. And it’s why Tudor already reduced fees and slashed its staff last year after investors took money out, unimpressed by several years of roughly flat returns, according to the Journal.

There’s optimism in some quarters that the skill that made investors rich and Jones a billionaire – and once able to charge up to 4 percent of assets plus nearly 30 percent of gains, among the highest fees in the hedge-fund industry – will again come into its own. The idea is that stocks and other investments will perform on their individual merits rather than responding en masse to monetary policies that have kept interest rates ultra-low for years.

Pessimists might counter that the $3 trillion hedge-fund industry is now crowded and much copied, and that a lot of information is far more easily available than it used to be. By sticking at it with hefty fees, though, Jones is betting he can relive at least some of his glory days.


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