Unique Functionality Addresses Complex Incentive Fee Structure
Eze Software, the premier provider of investment technology, has launched functionality to help hedge funds calculate and collect incentive fees within an increasingly popular ‘1 or 30’ structure. Eze Investor Accounting is the first solution in the market to address the handling of these fees.
In recent years, investors have been looking for alternatives to the 2 and 20 fee structure that are better aligned with the need for consistent investment performance. The so-called 1/30 structure uses the Total Fee Limit Method to ensure that the investor retains 70% of the profit generated for their investment in a hedge fund, capping the total fees to the manager at no more than 30% of gross profits over a period of time. The model analyzes the management and performance fees for a time period versus a portfolio’s performance and limits the negative impact from fees on an investor’s alpha in underperforming years.
Eze Investor Accounting has automated this calculation and analysis, ensuring that managers can efficiently review the total fee inputs and results, and report consistent and accurate fees to their allocator clients. Using Eze Investor Accounting allows the manager’s back office to avoid manually calculating and tracking the 1/30 model, and rapidly respond to any investor queries regarding the fees.
“This is a very difficult calculation to be able to track manually through Excel,” said Bill Neuman, Managing Director, Product Management & Development. “Because the fee structure requires tracking cumulative performance against benchmark over time, the market needs technology to manage continuous rebalancing. With this tool, we are responding to demand for the delivery of a clean capital balance with minimal processing.”
The incentive fee structure, popularized by the Teacher Retirement System of Texas and its consultant Albourne, has been generating interest among allocators. In addition to calculating the fee split between the investor and managers, Eze Investor Accounting gives users the ability to adjust the time period over which the fee analysis occurs and changes are calculated, include the calculations on capital reports, the ability to use estimates and close periods, and recall data on custom capital reports as needed.
Eze Software is a global leading provider of investment management software solutions designed to optimize operational and investment alpha throughout the entire investment process. Eze Software provides the platform for growth for the entire investment management community, maximizing efficiencies across order management, trade execution & analytics, portfolio analytics & modeling, compliance & regulatory reporting, commission management, and portfolio & investor accounting. For more than 20 years Boston-based Eze Software has been driving innovation in financial technology. Today, Eze Software partners with more than 2,500 buy- and sell-side institutions in 45 countries from their 15 offices worldwide. For more information, visit www.ezesoft.com.