Hedge fund fees to stay high despite pressure

By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge funds' hefty fees are likely to remain high even as institutional investors try to chip away at them for their clients, a top Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) executive said on Tuesday.

"It would be an overstatement to say there is a threat to the (hedge funds') fee structure," Brian Moynihan, president of Bank of America's Global Wealth and Investment Management Division, told the Reuters Wealth Management Summit in Boston. But "there will be constant downward pressure overall," he added.

Hedge funds, unlike mutual funds, traditionally charge a performance fee which is usually about 20 percent of the gains a manager makes. They also charge a management fee of about 2 percent. At some of the industry's most exclusive hedge funds, the performance fee is as high as 50 percent.

While the loosely regulated $1.9 trillion industry's fees have long been criticized as being too high, clients have mostly ended up paying them for access to a red-hot asset class where top fund managers routinely delivered double digit returns. And Moynihan said that top managers will continue to be able to command those types of fees.

But now that overall industry returns are more modest -- the average hedge fund has lagged behind blue chip stocks and technology stocks this year -- big players like Bank of America are working hard at pushing down some fees for clients.

Bank of America is aggressively expanding its wealth management business and offers clients with more than $3 million in investible assets the option of investing in individual hedge funds or in funds of funds, which buy into an array of hedge funds.

"We have long relationships with a lot of providers," Moynihan said, adding that this allows the bank to pressure managers on fees. "There are good managers out there who are looking to have steady flows from good customers like us," he said.

While providing access to independently managed hedge funds, Bank of America's money management arm Columbia Management is also creating its own hedge fund products, Moynihan said.