Practical Considerations for Hedge Fund Managers Implementing Tiered Management Fees (Part Two of Two)

As hedge fund managers have implemented tiered management fees, largely in response to investor demands, investors have generally responded positively to such terms.  However, managers must bear in mind certain practical considerations when offering a tiered management fee structure – whether as part of the fund’s general terms or on a one-off basis to certain investors.  This article, the second in a two-part series, discusses the benefits of tiered management fees; examines investor response to and demand for tiered management fee structures; and provides practical guidance for hedge fund managers seeking to implement such structures.  The first article discussed the increasing prevalence of tiered management fees, the rationale behind their implementation and approaches to structuring them.  For more on management fees, see “Sidley Partners Discuss Evolving Hedge Fund Fee Structures, Seed Deal Terms, Single Investor Hedge Funds, Risk Aggregators, Expense Allocations, Co-Investments and Fund Liquidity (Part One of Two),” Hedge Fund Law Report, Vol. 7, No. 36 (Sep. 25, 2014); and “Industry Perspectives on Hedge Fund Fee Pressures, Expense Allocations and Liquidity Terms,” Hedge Fund Law Report, Vol. 6, No. 31 (Aug. 7, 2013).

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