Compensation scheme or asset class?

A scoop to start: Above black rock executive Mark Wiedman he leavesin a move that complicates succession planning for the world’s largest money manager due to the eventual departure of the founder. Larry Fink. His departure comes as BlackRock reported that it had attracted register new money last year.

In today’s newsletter:

• Hedge fund managers pocket almost half of investment profits in fees

• Natixis and Generali about to announce asset management alliance

• Clean energy fund investors pull back as rates and Trump outlook cloud

Hedge funds: compensation scheme or asset class?

A hedge fund is a “compensation plan disguised as an asset class,” or so the saying goes. A new analysis of LCH Investmentsa hedge fund investor, is unlikely to dispel that notion.

Hedge fund investors have paid almost half of your profits in rates since the industry’s earliest days more than half a century ago, data shows.

Managers generated $3.7 trillion in total profits before fees, but fees charged to investors amounted to $1.8 trillion, or about 49 percent of gross profits, according to LCH.

The figures, dating back to 1969, show how the size of fees charged by managers has soared as the industry has matured.

“Until 2000, hedge fund fees accounted for about a third of total profits, but have since risen to half,” he said. Rick Sopherexecutive director of Edmond de Rothschild Capital Holdings and president of LCH Investments. “As yields went down, rates went up.”

The increase in overall commission from 30 percent to approximately 50 percent of gross profits is largely the result of higher management fees, according to LCH.

Hedge funds have historically been known for a “two and 20” fee model, in which investors pay 2 percent in management fees each year and a 20 percent performance fee on earnings. investments.

While management fees used to consume less than 10 percent of gross profits in the late 1960s and 1970s, they had absorbed almost 30 percent in the past two decades, LCH said.

The change suggests that efforts by institutional investors and investment consultants to reduce fees across the board have failed, with management fees eating up more of the returns as profits have declined.

Interestingly, the top three performers both last year and all time were multi-strategy hedge funds: D.E. Shaw, Izzy England‘s Millennium Managementand Ken Griffin‘s Citadel – who also hold some of the highest general positions.

DE Shaw charges well above “two and 20,” while Citadel and Millennium have a “pass-through” expense model, where the manager passes on all costs to its end investors rather than charging an annual management fee. . The transfer can amount to a de facto management fee of between 3 and 10 percent of assets annually. Typically, a performance fee of 20 to 30 percent of profits is also charged.

Click here to find out how much the fees charged by the world’s 20 most successful hedge funds compare to the rest of the industry.

Natixis and Generali close to reaching an agreement

European banks, insurers and independent groups are evaluating their commitment to asset management, weighing whether to double down, partner with others in search of scale or withdraw from the sector.

Those who remain are dealing with several dynamics. They are seeking scale in the face of declining margins, the need for technology investment and the growing power of larger U.S. players. But history shows that achieving full-blown M&A in asset management is fraught with difficulties.

Increasingly, strategic partnerships seem like an interesting middle ground.

The latest example of this is an alliance that would bring together two of the biggest European names in the sector. The owner of France Natixis Investment Managers and Italian insurer General are close to announce an agreement to create a joint asset management company.

Under the terms of the agreement, BPCE and General Investments will combine their asset management operations into a 50:50 joint venture. A preliminary non-binding agreement could be reached this week.

Woody Bradfordhead of Generali’s investment division, is expected to be named CEO, while Nicolás Namíaspresident of Natixis and CEO of its owner BPCE, will be named president.

Natixis has 1.2 trillion euros in assets under management and Generali just over half. Both firms operate a multi-boutique model.

The deal would allow BPCE and Generali to retain exposure to their earnings from asset management. It seeks to combine a capital-rich insurance company that is growing but needs more asset management products, with a business that has strong third-party distribution in the retail and wholesale markets, and a number of well-respected boutiques, including Harris Associates and Loomis Sayles.

For Generali, which receives income each year from its life insurance business, it makes sense to invest this money in an asset manager where it has a financial interest, rather than handing it over to an outsider to manage.

What are your thoughts on the fee structure of the hedge fund industry and who are the likely players in asset management M&A this year? Email me: [email protected]

Chart of the week

Investors withdrew about $30 billion in total from climate-focused mutual funds in 2024 after four years. the boom unraveled by the difficult economic conditions and the clouds that hang over socially responsible investment by the choice of donald trump.

It was the first year since at least 2019 that investors withdrew more than they had put in, highlighting the challenges the sector faces despite the global push to address climate change, he writes. Attracta Mooney and Rachel Millard in London.

Assets under management increased more than sevenfold in the previous four years to a record $541 billion. But this figure fell for the first time to $533 billion last year, as positive market valuations failed to fully offset the refunds.

Sales fell from a peak of $151 billion globally in 2021 to refunds of $29 billion last year, according to the data provider. morning star.

The drop in sales came despite growing calls for the private sector to provide more capital to tackle climate change, as governments struggle with tight budgets in the wake of the Covid-19 pandemic. Last year was also the hottest on record, as global warming worsened.

Hydrangea Bioyhead of sustainable investment research, said the election of Trump, who called climate change a hoax and vowed to overthrow the president. joe bidenAmerica’s flagship clean energy bill, the Inflation Reduction Act (IRA), had created “uncertainty” around the case for green investments. Right-wing campaigns against so-called environmental, social and governance investments also hampered sales, he said.

Meanwhile we have a first on how European banks have threatened to pull out of the sector’s largest climate alliance unless it follows the same path as the asset management initiative and reconsiders its rules, as executives on both sides of the Atlantic worry about the future of net zero collaboration before Trump’s decision. opening.

And don’t miss the one from FT Money cover story: Can sustainable investing survive Trump 2.0?

Five must-see stories this week

Activist short seller nathan andersonfamous for his campaigns against Adani Group, Super Micro and Nicholasis closing your signature Hindenburg Research seven years after founding it.

There is “accidents waiting to happen“in private credit due to more flexible credit standards and the large amount of capital that has flooded the sector, Nick Moakesthe £37.6 billion chief investment officer Welcome trust, has warned.

Investors have poured record amounts of money into an exchange-traded fund managed by Invesco that distributes its assets equally throughout the S&P 500as worries increase that Wall Street’s returns have become too dependent on a handful of tech titans.

French alternative asset manager Ardian has raised the larger background to buy stakes in older private equity funds and signaled it would be open to acquisitions as it looks to expand its business in the United States.

UK investor and philanthropist Jonathan Ruffer has admitted that his investment boutique of the same name has “failed to meet its objectives”to clients for the second year in a row by offering returns below cash.

And finally

I’ll be in Davos this week for the annual meeting that is the World Economic Forum. Call me if you’re there. At the Lugano Art Museum, a small and fascinating centenary exhibition Ernst Ludwig Kirchner and the artists of the Rot-Blau group explores how the German painter convalescence in Davos helped inspire the Rot-Blau group of artists of the 1920s.

Until March 23 masilugano.ch