LONDON/NEW YORK (Reuters) - Hedge fund firm Caxton Associates said it plans to cut the fees it charges investors following a period of lower returns for the industry, a letter to investors seen by Reuters showed.
The New York-based firm, which employs around 190 staff and manages $8 billion in assets - said the new fee structure on its Caxton Global fund would take effect from Jan. 1, 2017 and would be based on the amount of money a client invested.
Caxton, founded by Bruce Kovner in 1983, joins other high-profile hedge funds including Och-Ziff Capital Management and Tudor Investment Corp in cutting fees as investors demand better value for money.
Since the global financial crisis a range of factors have hit returns to such an extent that the alternative investment industry was now “inappropriately sized to deliver on clients’ return expectations”, Caxton’s chairman and chief executive officer, Andrew Law, told investors in the letter.
“Whilst it is entirely appropriate that the rewards for great performance continue to be exactly that, it is important to recognize that compensation across the entire financial services industry has moved lower post-global financial crisis.”
Caxton was not immediately available to confirm the contents of the letter or its current fee structure.
The letter stated that for investments of up to $100 million the investor would pay an annual management fee of 2.5 percent and a 27.5 percent cut of any outperformance. The management fee then falls in increments to 2.2 percent for those investing above $500 million.
In addition, the fund said it would launch a new share class for institutional investors prepared to lock up their money for three years. Those willing to do so would only pay a 2 percent management fee, the letter, dated Sept. 13, showed.
Law said Caxton had calculated the industry needed to generate gains of around $350 billion a year to meet client demands, while in the period 2003 to 2007, it generated one third of that amount.
“That five-year period also benefited from a market environment in which global growth was strong, emerging markets developing, and risk premia and real yields enticing...In contrast, current market conditions compare quite unfavourably.”
Writing by Simon Jessop; editing by Huw Jones and Elaine Hardcastle