New Way To Charge Fee, But Will It Fly?

Lisa Rapuano is being hailed a revolutionary, at least by The New York Times, for a new approach to charging hedge fund fees, which she will get to try out when her New York-based Lane Five Capital Management rolls out a value-oriented hedge fund early next year.

Lisa Rapuano is being hailed a revolutionary, at least by The New York Times, for a new approach to charging hedge fund fees, which she will get to try out when her New York-based Lane Five Capital Management rolls out a value-oriented hedge fund early next year. According to a presentation Rapuano made at the Value Investing Congress last week, she would ditch the standard 2% management/20% performance fee model in favor of one that would see her basically getting paid for her good work once every three years. For that, she would charge a 1.5% management fee and 40% of any profits above the S&P 1500 Index. The Times calls her plan a “a radical notion of delayed gratification.” Three years may seem a long time to not receive a paycheck, but she claims the current 12-month model is “less than ideal” because it may encourage people “to gun for performance and take undue risks at the end of the year.” Rapuano -- who worked with the legendary Bill Miller at Legg Mason earlier in her career managing that firm’s Legg Mason Special Investment Portfolio before handling it herself and then moving to hedge fund Matador Capital -- may have some work convincing investors of the virtues of her new ideas. For one thing, the three-year period is supposed to alleviate the pressure of taking risks as the tradition 12-month period approaches, but who’s to say she won’t feel similar pressure at the end of three years? Rapuano’s new fund structure is likely to make traditional hedgies a bit queasy, however, since in the long run, it means less in fees.