Is there a case for higher fund management fees?

Some private-equity and hedge funds are trying it on and raising their already high fund management fees. Investors should not be fooled.

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Human fund managers can't afford to rest on their laurels
(Image credit: Andrew Bret Wallis)

The fund industry, despite its seeming simplicity, has never been a low-cost one. And right now, a section of it seems to be getting more expensive than ever. In private equity, what is known as the "carried interest" for the partners in the fund has traditionally been 20%. In simple terms, they get a fifth of any profits the fund makes on its investments. They usually charge 2% of the funds under management as well to cover basic costs. In the last year, however, a group of leading private-equity funds, including big names such as Carlyle and Bain Capital, have raised the share of profits that go to the partners from 20% to 30%.

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Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.