DE Shaw Prevails in Fee Competition

Chidem Kurdas

For many years, hedge fund investors were willing to pay 2/20 or even higher fees to established managers with good track records. New or small funds could be less expensive, but typically not the known names. That appears to be changing. Investors want lower fees, period.

Consultants and funds of funds are bargaining hard with managers. After the 2008-2009 crisis and the Bernard Madoff scandal, what fund of funds did for investors became a critical question. The solution some funds of funds found was to become fee specialists—skilled at negotiating with managers and finding how to get a certain strategy at the lowest possible fee.  This is a selling point that brings investors to funds of funds.

The big fund firms are the main focus of the fee-lowering efforts. One of the names mentioned as accommodating the search for lower cost is  DE Shaw & Co. Last year this $21 billion quant shop received a mandate to manage part of Vanguard’s $4.3 billion growth and income fund. What that means is that DE Shaw was able to keep fees low enough to satisfy Vanguard, the low-cost mutual fund provider.

Investors in DE Shaw hedge funds don’t get deals quite like that, but apparently they are finding ways to keep down fees. Most hedge funds will have to match those arrangements.

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One Response to “DE Shaw Prevails in Fee Competition”

  1. From Low Rates to Low Fees | HedgeFundSmarts Says:

    […] The downward pressure on fees and other costs has been strong for several years and is expected to continue. Even well-established firms like the big quant shop D.E. Shaw agreed to manage money at lower cost. […]

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