Swaggering hedge fund managers, long known for ignoring client complaints during years of strong performance, are trying something new: listening.
The shift was evident at the annual SkyBridge Alternatives Conference at Bellagio in Las Vegas this week, where a group of money managers humbled by losses or meager returns acknowledged that they needed to do more to satisfy investors.
“Expectations about a hedge fund manager’s way of conducting business has become more demanding — and perhaps rightfully so,” Kenneth Tropin, founder of $12.1 billion Graham Capital Management, said during a panel discussion Wednesday.
“Every hedge fund manager has had to make the effort to be much more transparent, a much better communicator and more negotiable.”
After a string of disappointing investment returns, those negotiations have recently centered on lowering the relatively high fees hedge funds charge.
Managers traditionally take 2 percent of assets managed annually and 20 percent of profits, but investors now pay an average of 1.5 percent and 17.7 percent, respectively, according to data tracker HFR.
‘FEES HAVE GOT TO COME DOWN’
“In a low return environment, unless you are particularly exceptional you’re not going to be able to generate returns sufficient to justify the fees,” Leon Cooperman, billionaire founder of $5.2 billion hedge fund firm Omega Advisors, said while speaking at the same event.
“Fees have got to come down,” added Kyle Bass, Chief Investment Officer of Hayman Capital Management.
Investors in hedge funds are pleased that managers are more willing to listen.
Sean Bill, Investment Program Manager for the Santa Clara Valley Transportation Authority and an adviser to the San Francisco Employees Retirement System, said firms are now more willing to lower their fees and increase the amount of portfolio information they share.
“It’s finally reaching a tipping point,” Bill told Reuters on the sidelines of “SALT,” as the event is known. “Hedge funds are seeing the writing on the wall.”
But better terms don’t always make up for hedge fund losses.
“I’m not happy with performance. Only a small percentage of managers can earn their fees,” Roslyn Zhang, managing director for fixed income and absolute return investments at China Investment Corp, told Reuters. “Luckily we have some of them. But with the others we are evaluating what to do with them.”
A benchmark of all strategies, the Hedge Fund Intelligence Global Composite Index, gained just 2 percent last year and is down 0.36 percent in 2016 through April.
The SALT conference, in its eighth year, is the most prominent hedge fund-focused event in the U.S. Organized by SkyBridge’s managing partner Anthony Scaramucci, the event mixes well-known investors with politicians and celebrities.
This year, speakers included Citadel founder and billionaire Ken Griffin, recently retired basketball star Kobe Bryant, former U.S. House of Representatives Speaker John Boehner, and transgender rights advocate Caitlyn Jenner. The reggae band The Wailers performed on Wednesday night; on Thursday, rockers The Killers entertained the male-heavy crowd.
Outside of the main Bellagio ballroom, besuited salespeople pitched prospects in the hallways, networked and drank at sponsored poolside cabanas, and, after-hours, played craps on the hotel’s expansive casino floor.
Hedge fund managers’ newfound willingness to compromise comes as the industry faces a barrage of negative attention.
Presidential candidates Donald Trump and Hillary Clinton have both pilloried hedge fund managers, and some large investors, especially those tied to public workers unions, have been openly critical of the industry.
David Rubenstein, billionaire co-founder of Carlyle Group, told the approximately 2,000 person SALT audience on Wednesday that the hedge fund and private equity industry was “under attack.”
Rubenstein suggested an unusual response to a traditionally secretive industry: public relations.
“All of us have an obligation to try to explain … what the hedge fund industry and the private equity industry does that is useful,” Rubenstein said, noting cash-strapped public pension clients, investments that improve companies, and creating jobs. “We shouldn’t be upset about what we do. We should be proud.”