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February 21, 2018  

Marcato Trims Fees Following Banner Year

Activist fund shop Marcato Capital is reducing the fees it charges investors, despite a 2017 return that was its best in four years.

In a note to clients last month, investor-relations head Brooke Beck said the San Francisco firm would introduce new share classes both for its flagship fund, Marcato International, and Marcato Encore International, which mainly targets small-cap companies. While details are sketchy, the result for limited partners will be lower management fees than the current rates of 1.5% to 2%, depending on the share class.

At the same time, investors in share classes with longer-term lockups also will get a break on performance fees. From now on, they’ll pay fees only on profits above an unspecified hurdle rate. Under the funds’ existing terms, Marcato keeps 18-20% of limited partners’ profits.

The move suggests investors continue to pressure managers for fee concessions despite improved performance last year. “We structured this offering after discussions with our largest investors and consultant relationships,” Beck noted.

An annual survey of hedge fund investors published by Deutsche Bank last week found management and performance fees continued to fall last year, even as hedge funds met investors’ return targets for the first time in four years. The average management fee dropped to 1.53%, from 1.69% three years earlier, while the average performance fee was down 78 bp to 17.3%.

Marcato International returned 25.8% last year, the second-best performance among 29 event-driven funds tracked by HSBC. It was the fund’s best result since 2013. Marcato Encore International rose 22.6%, its best showing since inception in June 2015.

The San Francisco firm, led by Richard “Mick” McGuire, reported running $1.4 billion of gross assets at yearend 2016.