ETF, Mutual Fund, Hedge Fund Fees Fall

While mutual fund investors have been shopping for low costs, some of the most dramatic price cutting has occurred among hedge funds. Seeking to serve sophisticated investors, hedge funds have traditionally charged 2% annual expenses plus 20% of all the profits. Those are outsized costs that can only be justified by unusual returns. But lately some institutional investors have decided that hedge funds have been overcharging. Giant pensions, such as Calpers and Utah Retirement System, have begun bargaining for lower fees.

Many pensions report that they are winning concessions. Though most investors continue paying 20% of the profits, the average annual fee is now 1.63%, according to Preqin Ltd., a consulting firm. Preqin says 27% of institutional clients pay less than 1.5%. Surveying institutions, Preqin found that half had sought lower fees. Of those that negotiated for reductions, 62% won them. "A lot of hedge funds need new investors now, so they have become more flexible about what they will charge," says Amy Bensted, an analyst at Preqin.

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