Carduus Capital acts on fees
Start-up investment manager Carduus Capital has become the latest hedge fund investor to offer to refund part of its fees if it does not perform as clients expect.
Derek Stewart, co-founder of the UK-based manager and a veteran of BNY Mellon’s hedge fund business, said: “If we fail to make a positive return over a 12-month period, we will return half our fee to investors.
“We are confident in making this commitment as we have been investing for 16 years, and 2008 was the only year we did not generate a positive return, which was disappointing. If we had this arrangement in place we would have returned money to clients.”
The level of charges investors incur will vary depending on the size of investment and what they want of Carduus. For example, the fees for a fund of funds will be capped at 0.75%, compared to the 1.4% management fee and 9.2% performance fee levied by funds of funds launched this year, according to data provider Eurekahedge.
The UK-based firm is not the first to offer cut fees if performance does not meet expectations. Hermes BPK Partners and single manager hedge fund Sothic Capital have adopted similar approaches.
Carduus was launched as an event-driven and relative value specialist by Stewart and Scott MacDonald, six months after they left Mellon Global Alternative Investments. They had founded that unit, and ran $1.9bn in similar products there.
They have invested in hedge funds since 1994, and worked together doing so since 1998.
Stewart said the industry is evolving from offering mainly funds of funds products, to providing more customised solutions.
Rival funds of funds have reacted to this trend. Gottex offers access to its research expertise, and has entered a joint venture to provide onshore managed accounts to clients via a Luxembourg-based platform. Man also offers bespoke portfolios and managed accounts for its clients.
Carduus will offer bespoke portfolios in fund or managed account structures, which will include advising on direct investments in hedge funds that focus on corporate credit instruments.
“At BNY Mellon we saw growing interest from investors allocating to alternatives, however many did not have the experience to invest direct or their mandate did not allow them to invest in a funds of funds because of the double layer of fees,” Stewart said. “Increasingly investors want bespoke solutions, not commingled funds.”