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Crystallization – the Hidden Dimension of Hedge Funds' Fee Structure

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  • G. ELAUT
  • M. FRÖMMEL
  • J. SJÖDIN

    ()

Abstract

We investigate the implications of variations in the frequency with which hedge fund managers update their high-water mark on fees paid by investors. We rst doc- ument the crystallization frequencies used by Commodity Trading Advisors (CTAs) and then perform simulations and a bootstrap analysis. We nd a statistically and economically signicant eect of the crystallization frequency on the total fee load. Hedge funds' total fee load increases signicantly as the crystallization frequency increases. As such, our ndings indicate that the total fee load not only depends on the management fee and incentive fee, but also on the crystallization frequency set by the manager.

Suggested Citation

  • G. Elaut & M. Frömmel & J. Sjödin, 2014. "Crystallization – the Hidden Dimension of Hedge Funds' Fee Structure," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/872, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:14/872
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    References listed on IDEAS

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    More about this item

    Keywords

    Hedge fund; CTA; Incentive fee; Fee structure; Gross returns; Crys- tallization;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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