Hedge fund managers earned a record $16 billion in fees last year, according to Chicago-based Hedge Fund Research, representing average mana...

Hedge fund managers earned a record $16 billion in fees last year, according to Chicago-based Hedge Fund Research, representing average management fees of 1.44 per cent of assets, up from 1.27 per cent five years ago. The 13 per cent increase in fee income has been achieved during a year when the number of funds has doubled to more than 8,000, but annual returns have halved to below 10 per cent from almost 20 per cent on average in 2003, according to the research. Separate released research from Credit Suisse and Tremont Capital Management shows hedge funds returns averaged 7.6 per cent in 2005 after its index of 400 managers, climbed 1.6 per cent in December, lifting the industry benchmark above US equity indexes and bond-market returns. Hedge fund returns lagged global equity indexes, though, with the MSCI World Index showing a return of 10 per cent in 2005. Emerging-markets hedge funds performed the best in 2005, returning more than 17 per cent, while convertible arbitrage managers lagged all other strategies, losing 2.6 per cent on average. Research from the BNP Paribas-sponsored London Business School's Hedge Fund Centre has suggested that these falling returns along with a dramatic increase in the number of hedge funds will put downward pressure on the performance fees charged by hedge fund managers, typically 20 per cent of profits above a benchmark. The increasing presence of institutional investors demanding better value will also depress hedge fund fees, which will fall to about 17.5 per cent, the centre predicts.