Private hedge fund and equity firms are battling to provide more adjustable fee structures as they come under pressure from clients after some funds lost money in the credit crisis.

Institutional investors making large ticket investments have forced for lower management fees, paid as a percentage of assets supervised, and many are already earning them.

Industry insiders, addressing at the Reuters Private Equity and Hedge Funds Summit this week, are astonished it took a crisis to push the changes with clients rarely moved to challenge fat fees in better times.

Jon Moulton founder of private equity firm Better Capital, said, “It’s been a matter of permanent puzzlement that investors have taken little interest in fees (until now)”.

Things have changed since the crisis broke, with clients pushing for fee cuts, particularly where access to their assets is not always immediate.

Chris Goekjian, CIO of private equity firm Cheyne Capital told the Summit in London.

“Clients are reluctant to pay fees on unrealized returns of illiquid assets,”

“No one wants to pay fees on returns that ultimately may not be realized,” he said.

(Mr. Goekjian will have overall responsibility for risk management of all Cheyne Capital funds and investment products, oversight of portfolio management teams and development of new investment products.)

Hedge fund performance fees came under pressure during the financial crisis, when many funds failed to protect investors and restricted investors’ access to their money, saying withdrawals could harm other clients.

However, investors said managers who shared gains in good years should also share the pain in bad ones.

Cheyne Capital has addressed investors’ concerns by only levying performance fees on realized gains, said Goekjian the Chief Investment Officer of Cheyne Capital.

CRISIS RESPONSE

Some managers have responded proactively to the financial crisis and the ensuing fee debates and others have come under pressure from their investors to lower fees.

Bob Long of listed private equity fund of funds Conversus (CONCA.AS), said “We cut our management fees by 20 percent… we were not making new investments at that time” .

Long said, “The fact that we were a leader in reducing fees has helped us”.

The typical structure of a 2 percent management fee and a 20 percent performance fee is gradually being eroded as more hedge fund and private equity managers adapt to investors’ demands.

Andreas Utermann, Global Chief Investment Officer at Allianz Global Investors equities arm RCM, said at a separate briefing this week,” some hedge fund managers are already being paid 1 and 15 when they manage institutional money and our expectation is that we will see more of this”.

Some funds are already ahead of the pack but have little intention of breaking lower ground at present.

These include Toscafund, where fees of 1.5 percent for management and 15 percent on performance have always been among the lowest, said chief executive Martin Hughes.

Still, managers say there is little reason for the best funds to budge on performance fees as investors are still willing to pay for outperformers.

“There is not that much pressure on fees… if you make the returns,” said Oliver Dobbs, chief investment officer of hedge fund firm CQS.