More Hedge Funds to Renegotiate Fees With Texas Endowment

(Bloomberg) -- The University of Texas Investment Management Co. has persuaded about half its hedge funds to renegotiate fees, tying them more closely to performance.

The management company, which oversees about $31 billion of endowments for two public universities, said it may save as much as $45 million this year as a result of new fee arrangements. Utimco, as the Austin-based nonprofit is known, said today at a board meeting that 16 funds agreed to concessions, up from five in December, representing about $5.3 billion of assets.

Pension funds and other institutional investors have been pushing back against high fees as hedge fund returns have trailed other asset classes for years. Chris Ailman of the California State Teachers’ Retirement System has repeatedly said the standard fee model -- a 2 percent management fee and 20 percent of profits -- should be “buried.” Public pensions in California, Kentucky, Illinois, New Jersey and Rhode Island have either cut or eliminated their exposure to hedge funds because of high costs and disappointing returns.

Utimco is pushing a model known as 1-or-30, where funds get either a 1 percent management fee or 30 percent of performance -- whichever is higher. Ryan Ruebsahm, who oversees the group’s hedge fund portfolio, said that those that have renegotiated fees are of “all shapes and sizes and strategies.”

Utimco adopted the alternative fee arrangement last year after hiring Britt Harris as chief executive officer from the Teacher Retirement System of Texas, where it was developed.

Utimco hopes to get 65 percent of its managers to renegotiate its fees this fiscal year, which ends June 30.

©2018 Bloomberg L.P.