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The past two years have been incredibly underwhelming for the hedge fund industry.
Hedge funds fell by 3.64% on average in 2015 and by 0.58% in 2014, according to data from Hedge Fund Research.
That said, there has been a great deal of dispersion between the best performers and the worst performers, with some finishing 2015 up by more than 50% and others finishing the year down by more than 20%, according to data from HSBC.
Naturally, the less-than-stellar performance of the hedge fund space as a whole has renewed the heated debate about hedge fund fees.
Historically, hedge funds have been paid through a compensation structure commonly known as the "2 and 20," which means they charge investors 2% of total assets under management and 20% of any profits. The fees can vary from fund to fund, with some charging less and others charging more, such as "3 and 30."
In a new report, Barclays' capital solutions group suggested"2 and 20" may be becoming a "relic of the past." Less than a third of the 110 hedge funds the bank surveyed for its report had a management fee higher than 1.75%.
The fees are worth it
The Barclays report also analyzed the relationship between headline fee levels and performance to figure out whether more expensive hedge funds outperformed funds that were comparatively less expensive.
After examining the net returns of a large number of hedge funds across different strategies for one year (Q3 2014 to Q3 2015), Barclays found that the best-returning quadrant was the one representing managers with the highest overall fees (2%+, 20%+).
"While a flaw in our analysis is that we looked at only a one-year period, the data does suggest that the best managers are confident of being able to generate strong returns and therefore demand higher fees," the report said.
Of course, this comparison focuses only on hedge funds, so it doesn't compare the performance of hedge funds with that of much cheaper mutual funds or index-tracking funds.
Still, if you are going to put money into a hedge fund, it seems you get what you pay for.
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