Key Takeaways
- • Gotham Asset Management, a $6 billion money manager led by Joel Greenblatt and Robert Goldstein, is exploring a revised fee structure for its Gotham Neutral Strategies hedge fund that would charge the greater of 1 percent management fee or 30 percent of returns exceeding the fund's benchmark, down from the current 1.5 percent management fee and 20 percent performance fee.
- • The Gotham Neutral Strategies fund delivered 7.5 percent returns in 2016, significantly outperforming the HFRI Market Neutral Index at 2 percent, with annualized gains of 7 percent since inception in July 2009.
- • Gotham would join at least 16 multi-billion-dollar hedge funds worldwide that have implemented or are implementing the "1-or-30" fee model as of mid-February 2017, a structure championed by institutional investors including the Teacher Retirement System of Texas.
- • The fee shift reflects industry-wide pressure to reduce costs amid persistent criticism that the traditional "2-and-20" model (2 percent management fee, 20 percent performance fee) overcharges investors relative to returns delivered.
Summary
Gotham Asset Management is in active discussions with investors regarding a performance-aligned fee restructuring for its $6 billion Gotham Neutral Strategies hedge fund. Under the proposed model, the fund would charge a single fee representing the greater of two options: a 1 percent management fee or 30 percent of returns that exceed the fund's benchmark. This represents a meaningful shift from the fund's current fee structure of 1.5 percent management fees and 20 percent performance fees, reducing both the baseline cost and the performance fee rate while introducing a benchmark-relative component.
The timing of this exploration reflects Gotham's historical positioning on fee transparency and performance accountability. Co-chief investment officer Joel Greenblatt stated in a May 2014 Bloomberg Television interview that most hedge funds charge investors too much relative to the returns they generate, signaling management's alignment with the cost-consciousness increasingly prevalent among institutional investors.
Gotham Neutral Strategies' recent performance supports the case for investor retention under the new structure. The fund gained 7.5 percent in 2016, substantially exceeding the HFRI Market Neutral Index return of approximately 2 percent for the same period. Since its inception in July 2009, the fund has delivered annualized gains of 7 percent, demonstrating consistent outperformance across a longer time horizon.
The proposed fee model mirrors the "1-or-30" structure that has gained traction among institutional asset owners. According to Jonathan Koerner of Albourne Partners, as of mid-February 2017, at least 16 multi-billion-dollar hedge funds worldwide have either implemented or are in the process of implementing this fee arrangement. The structure was introduced to the industry in the fourth quarter of 2016 and has been championed by major institutional investors including the Teacher Retirement System of Texas. Gotham's exploration of this model places it among a growing cohort of managers responding to systematic pressure from limited partners demanding tighter alignment between compensation and performance delivery.
The timing of this exploration reflects Gotham's historical positioning on fee transparency and performance accountability. Co-chief investment officer Joel Greenblatt stated in a May 2014 Bloomberg Television interview that most hedge funds charge investors too much relative to the returns they generate, signaling management's alignment with the cost-consciousness increasingly prevalent among institutional investors.
Gotham Neutral Strategies' recent performance supports the case for investor retention under the new structure. The fund gained 7.5 percent in 2016, substantially exceeding the HFRI Market Neutral Index return of approximately 2 percent for the same period. Since its inception in July 2009, the fund has delivered annualized gains of 7 percent, demonstrating consistent outperformance across a longer time horizon.
The proposed fee model mirrors the "1-or-30" structure that has gained traction among institutional asset owners. According to Jonathan Koerner of Albourne Partners, as of mid-February 2017, at least 16 multi-billion-dollar hedge funds worldwide have either implemented or are in the process of implementing this fee arrangement. The structure was introduced to the industry in the fourth quarter of 2016 and has been championed by major institutional investors including the Teacher Retirement System of Texas. Gotham's exploration of this model places it among a growing cohort of managers responding to systematic pressure from limited partners demanding tighter alignment between compensation and performance delivery.
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