An employee counts U.S. one-hundred dollar banknotes at the Hang Seng Bank Ltd. headquarters in Hong Kong, China. (Photographer: Paul Yeung/Bloomberg)

D.E. Shaw Is to Buck Industry Trend With 3-and-30 Fees

(Bloomberg) -- D.E. Shaw & Co. is making it more expensive for investors in its biggest hedge fund, raising fees while many of its rivals have been forced to slash them.

The New York-based investment firm is reverting to a fee model that it held for the better part of the 2000s, according to a person with knowledge of the matter. The new structure will charge 3 percent of assets and 30 percent of profits and will take effect at the start of next year.

The move cements D.E. Shaw’s standing as one of the pricier funds in the industry. Hedge funds, subject to backlash from investors frustrated by mediocre returns, have been trimming fees and offering more concessions to investors over the past decade. Fees now average 1.45 percent for management and 17 percent for performance, according to a Credit Suisse Group AG survey released in August, down from the traditional 2-and-20 model.

A spokesman for D.E. Shaw, which has more than $50 billion in assets, declined to comment.

Since 2011, the firm’s $14 billion Composite fund, which is closed to new investors, has charged a 2.5 percent management fee and 25 percent incentive fee, said the person, who asked not to be identified because the information isn’t public. The fund is boosting fees amid rising costs for technology and infrastructure and increasing competition for talent. The roughly 1,300-person firm has grown its investment staff by 45 percent over the past five years as investors search for market-beating returns and diversification.

The flagship, which invests across multiple strategies, jumped 11.2 percent last year and kicked off 2019 with a first-quarter gain of more than 3 percent.

Founded in 1988 by computer scientist David Shaw, D.E. Shaw is one of the longest-running hedge funds and among the earliest to use complex mathematical models for trading.

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