A New Dynamic Between Institutional Investors and Hedge Funds

There was an interesting article in Reuters about how institutional investors are getting more leverage with hedge funds.  They are asking managers to reduce fees and for more flexible redemption terms.  They are doing more due diligence;  sometimes doing six months of research before investing.  Recently, D.E. Shaw reduced fees. A manager profiled in the article actively looks for hedge funds that charge management fees of 1%-1.5%.  He also test drives a fund by investing a smaller amount before committing a large amount of capital.  The increase in investments by pension funds is another factor driving this shift.  Pension fund money is placed in the largest hedge funds.  In the past, pensions used to invest in funds through a fund of funds to escape the extra layer of fees.  They demand more transparency and a monthly redemption cycle.