Dynamically Self-Adjusting Hedge Fund Fee Structures

The common hedge fund fee structure consists of a fixed management fee and a performance fee that increases linearly with the fund performance above a hurdle return. This is a contingent fee structure whose fee rate depends upon the absolute annual return of the fund. We introduce new relative (market-benchmarked) fee components to add to this existing structure to increase its contingency in ways that make it adaptable to significant changes in the market and in the performance availability for these active funds.