Start-up hedge fund Northlight aims to draw attention to its launch this week with a shake-up of the traditional operating model and about $100m (£61m) in commitments from clients.
The fund, which is being set up by a team of traders including Cyril Armleder, former head of GLG’s credit fund, will market itself to investors as departing from the orthodox model.
Half of the Northlight’s annual performance fees – the most lucrative source of income for most hedge fund managers – will be reinvested into the fund alongside client money and will remain locked in until clients themselves withdraw their capital.
Also the fund will charge fees on a “1.5 and 15” basis – or below the “2 and 20” industry standard based on 2 per cent of assets under management and 20 per cent of portfolio returns.
Since the turmoil in the financial markets began, large institutional investors such as Calpers have demanded that hedge funds lower their fees and align themselves better with the interests of their clients.
Few existing funds, however, have shown signs of lowering their charges.
Although a series of hedge fund launches this year have included tweaks to the template under which most of the hedge fund industry has operated for the past two decades, none has made radical alterations.
Northlight will also have an independent Cayman Island board.
The independent board will directly appoint and employ the hedge fund’s chief risk officer, Simon Christofides, a former senior derivatives expert at Goldman Sachs.
Investors will be provided with a monthly calculation giving a value of the fund portfolio’s bid, mid and offer prices – or so-called “3WayNav” – allowing the investors to judge the value of the fund’s holdings with liquidity taken into account.
A particular problem that many hedge fund investors have faced during the past 18 months has been the illiquidity of some hedge fund portfolios.
This has led to managers “gating”, or freezing, redemptions when clients request them.
Northlight will invest in European credit and fixed-income markets.