Understanding Hedge Fund Fees: Implications for Hedge Fund Managers

K&L GATES CURRENT ENVIRONMENT (CONT.) ■ Smaller funds mean less ability to look to management fees as a profit center. Increased interest in modified carry structures that pay even if below HWM. Investors looking for slices of GP and management company in exchange for seed or rescue investments. Fee levels depressed by non-fee bearing PIKs; realization-based fees on side pockets; reduced fee offers to induce extended lockups and attract new money Unavailability (or reduced degree) of leverage lowers plausible. return expectations for many strategies. More regulation is coming, and will add to operating expense. klgates.com 7

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