A previously unknown hedge fund known as White Square gripped the headlines last week after the Financial Times reported it to be the first-known casu

Two and twenty is long dead. Hedge fund fees fall further below onetime industry standard

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2021-06-28 11:00:02

A previously unknown hedge fund known as White Square gripped the headlines last week after the Financial Times reported it to be the first-known casualty among those who shorted GameStop. 

As White Square tells it in the letter announcing the firm's closure: "We experienced first-hand, the shift in trend away from hedge fund investing to cheaper alternatives." The firm noted that two investors redeemed and rediverted that capital into cheaper passive funds or private equity. 

White Square isn't the first, and most certainly won't be the last, hedge fund that fails to convince investors to pay up for its asset management. But fees are as inextricable to the hedge fund industry as short selling and leverage. The earliest-known hedge fund, developed by A.W. Jones more than 70 years ago, charged investors a 20% fee from realized gains, a novelty at the time. A management fee, amounting to 2% of total assets, was added later, popularizing the 2-and-20 structure. 

In recent years, average fees have shrunk. According to HFR, in the fourth quarter of 2020, hedge funds charged an average of a 1.4% management fee and 16.4% performance fee. That's down from the 1.6% management fee and 19% performance fee that was commonplace a decade prior. 

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