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Crystallization: the hidden dimension of Hedge funds' fee structure

Gert Elaut (UGent) , Michael Frömmel (UGent) and John Sjödin (UGent)
Author
Organization
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 first document the crystallization frequencies used by Commodity Trading Advisors (CTAs) and then perform simulations and a bootstrap analysis. We find a statistically and economically significant effect of the crystallization frequency on the total fee load. Hedge funds' total fee load increases significantly as the crystallization frequency increases. As such, our findings 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.
Keywords
Hedge fund, Incentive fee, Fee structure, Gross returns, Crystallization, CTA

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Citation

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MLA
Elaut, Gert, et al. “Crystallization: The Hidden Dimension of Hedge Funds’ Fee Structure.” Faculteit Economie En Bedrijfskunde : Working Papers (2014), vol. 2014, Ghent University, Faculty of Economics and Business Administration, 2014.
APA
Elaut, G., Frömmel, M., & Sjödin, J. (2014). Crystallization: the hidden dimension of Hedge funds’ fee structure. Faculteit economie en bedrijfskunde : working papers (2014). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
Chicago author-date
Elaut, Gert, Michael Frömmel, and John Sjödin. 2014. “Crystallization: The Hidden Dimension of Hedge Funds’ Fee Structure.” Faculteit Economie En Bedrijfskunde : Working Papers (2014). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
Chicago author-date (all authors)
Elaut, Gert, Michael Frömmel, and John Sjödin. 2014. “Crystallization: The Hidden Dimension of Hedge Funds’ Fee Structure.” Faculteit Economie En Bedrijfskunde : Working Papers (2014). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
Vancouver
1.
Elaut G, Frömmel M, Sjödin J. Crystallization: the hidden dimension of Hedge funds’ fee structure. Vol. 2014, Faculteit economie en bedrijfskunde : working papers (2014). Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration; 2014.
IEEE
[1]
G. Elaut, M. Frömmel, and J. Sjödin, “Crystallization: the hidden dimension of Hedge funds’ fee structure,” Faculteit economie en bedrijfskunde : working papers (2014), vol. 2014. Ghent University, Faculty of Economics and Business Administration, Ghent, Belgium, 2014.
@misc{4295543,
  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 first document the crystallization frequencies used by Commodity Trading Advisors (CTAs) and then perform simulations and a bootstrap analysis. We find a statistically and economically significant effect of the crystallization frequency on the total fee load. Hedge funds' total fee load increases significantly as the crystallization frequency increases. As such, our findings 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.}},
  author       = {{Elaut, Gert and Frömmel, Michael and Sjödin, John}},
  keywords     = {{Hedge fund,Incentive fee,Fee structure,Gross returns,Crystallization,CTA}},
  language     = {{eng}},
  pages        = {{32}},
  publisher    = {{Ghent University, Faculty of Economics and Business Administration}},
  series       = {{Faculteit economie en bedrijfskunde : working papers (2014)}},
  title        = {{Crystallization: the hidden dimension of Hedge funds' fee structure}},
  volume       = {{2014}},
  year         = {{2014}},
}