3-and-30 Is Back for D.E. Shaw

After eight years, D.E. Shaw is raising the fees it charges for its flagship hedge fund.

Illustration by II

Illustration by II

Who says hedge fund fees are falling?

Alternative investment firm D.E. Shaw Group plans to raise the fees it charges for its $14 billion flagship D.E. Shaw Composite fund to a 3 percent management fee and 30 percent performance fee, effective January 1, according to a person familiar with the situation. The fund had previously charged fees of 3-and-30 from 2003 to 2011, but it then lowered those fees to 2.5 percent and 25 percent.

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The firm is making the change in response to high demand from investors and scarce capacity in the fund, the person said.

D.E. Shaw thinks the fund’s strong performance is partly due to the firm keeping the fund at an appropriate size and developing research support with investments in both people and technology, according to the person. The composite fund has been closed to new capital since mid-2013.

The person familiar with the firm’s plans thinks the fund will remain an attractive investment, even with a 3 and 30 fund structure, given its excess returns. Hedge funds that demonstrate they can deliver consistent excess returns will be able to charge higher fees, while those that can’t will need to yield to cost pressures from investors, and D.E. Shaw’s move is in line with that trend, said the person.

The multi-strategy composite fund was launched in 2001. The composite fund’s annualized net return is 10.8 percent since inception, if a 3-and-30 fee structure had been applied over that entire period. In 2018 alone, using a 3 and 30 fee structure for the analysis, the fund would have returned 10.1 percent.