A growing number of hedge funds are considering cutting their fees in response to prolonged underperformance and mounting pressure from investors, according to new data released by hedge fund and family office prime brokerage IG Prime.
In a survey of over 100 hedge fund managers, 44% said they were contemplating changes to their fee structures — a potential break from the long-standing “2 and 20” model that has defined the industry for decades.
Despite persistent scrutiny, nearly three-quarters (74%) of hedge funds surveyed still charge a traditional 2% management fee and 20% performance fee — or a close variant. However, sentiment appears to be shifting, with managers increasingly open to fee renegotiations to maintain relevance in a more demanding fundraising environment.
Of those considering a fee overhaul, 64% cited the need to boost competitiveness, while 42% pointed to rising regulatory pressures. Only 16% attributed the potential shift to direct client demands, suggesting that hedge funds are being proactive rather than reactive in adapting to market conditions.
“Many managers are feeling the pressure to be more flexible when it comes to fees,” said Chris Beauchamp, Chief Market Analyst at IG Prime. “There’s a growing perception that hedge funds have underdelivered on returns over the last decade, and allocators are becoming more assertive in fee discussions.”
Alongside performance challenges, cost inflation is further squeezing margins. The survey found that 43% of hedge funds identified compliance as their fastest-growing expense, followed closely by technology at 42%. These rising operational burdens are forcing firms to re-evaluate pricing models and scalability.
While the hedge fund industry still markets itself as a source of non-correlated returns — particularly attractive during periods of market volatility — investors have become more discerning about performance net of fees. This has been especially evident as passive strategies and liquid alternatives have gained traction.
Emerging managers have long been more flexible on fee terms to attract early capital, often launching with reduced management fees, founder share classes, or performance hurdles. The fact that more established firms are now revisiting their fee models reflects a broader recalibration of the manager-investor relationship.
