Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Fund Terms and Conditions

A long and short equity fund generally offers investors terms that reflect the nature of their specific strategy and the liquidity of the fund. Fees charged by long and short funds generally include a 1 to 2 percent management fee and a 15 to 20 percent performance fee, although there is a wide range.

Investors who want their money back and wish to redeem their investment can only do so according to the terms of the fund. Typically, funds restrict the redemption period so investors cannot freely redeem. A long and short equity fund generally offers quarterly redemption, although some do require longer. Event-driven strategies may have initial lockups and annual redemption based on the more strategic nature of their portfolio and the need to follow an event through to its completion without having to liquidate positions to meet redemptions.

Once an investor has decided to redeem, he must give the manager notice. Long and short equity funds typically require 60 to 65 days’ notice. An investor who decides to redeem from a particular fund needs to inform the manager of that decision 60 to 65 days before the next quarter end to receive redemption after the quarter is over. Tables 7.4 and 7.5 show some typical terms and fund details that would be offered by a U.S.-based convertible arbitrage fund.

Table 7.4 Convertible Fee and Redemption Structure.

Subscription frequency	1 month
Redemption frequency	3 months
Redemption notification period	45 days