(Bloomberg) -- D.E. Shaw & Co. is hiking fees for its three biggest hedge funds to as high as 40% -- making them among the most expensive in the industry.
The firm, with about $60 billion under management, is raising performance fees -- its cut of investor profits -- for the Oculus, Composite and Valence funds by 5 percentage points starting in July, according to a person familiar with the matter. Investors will pay 30%, 35% and 40% of profits for the funds, respectively, while the fee on managed assets remains unchanged.
A spokeswoman for the New York-based firm declined to comment.
D.E. Shaw posted double-digit returns across the three vehicles last year and so far in 2022, joining other multistrategy hedge funds taking advantage of volatile markets to produce outsize gains.
The Composite fund, the firm’s largest, makes quantitative and human-driven bets across assets and geographies and rose 20.5% this year through August, said the person, who asked not to be identified because the figures aren’t public.
The increase in fees will be the second since 2019, when D.E Shaw boosted them for the Composite fund to 3% of assets and 30% of profits, up from 2.5-and-25. The latest hike, as before, will help the firm pay for technology and data infrastructure as well as compensation, amid stiff competition for talent, the person said.
For years before the pandemic, investors had pushed hedge funds to cut fees as a dearth of market volatility crimped returns. Still, the industry’s biggest and best performers succeeded in extracting more from their clients. In 2019, Element Capital Management jacked up its performance fee to 40% from 25%.
Read more: Talpins Hikes Fees to 40% at Element Fund, Defying Industry
D.E. Shaw also plans to return a substantial amount of profits to investors of all three funds at year-end, although exactly how much hasn’t yet been determined, the person said. At the end of 2021, the Composite and Oculus funds returned profits in full.
The three funds are capacity-constrained, meaning performance could suffer if their assets grow too large. All make multistrat trades, although Oculus has a sizable macro allocation and Valence, the smallest of the trio, focuses more on equities or equity-linked securities. Collectively the three funds manage about $40 billion of the firm’s total assets. They will continue to be closed to new cash.
D.E Shaw was founded in 1988 by computer scientist David Shaw and was a quant-trading pioneer that deployed complex algorithms to make investments. It has since evolved to also make human-run trades and private equity wagers.
The firm has started a few new funds recently, including the September launch of its Diopter private credit fund to focus on bank securitization products. That followed the debut earlier in the year of the Lithic Fund, which trades across various asset classes. Last year, it raised $1 billion for its fifth private credit vehicle, Alkali Fund V.
D.E. Shaw is now raising its first-ever private equity fund, Voltaic, targeting $500 million.
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