One of the things that I have noted consistently in my prior blog posts, and other articles that I have written elsewhere, is that Asia is an innovative region with respect to fund structuring. Examples of this include the prevalent use of segregated portfolio company structures to create private funds that allow investors to participate entirely on a deal-by-deal basis, and the use of senior and subordinated share class structures to differentiate between investors seeking high or lower risk/return profiles in a particular fund.
I was interested to see yet another example of some Asian innovation in this recent Bloomberg article. The article looks at an innovative approach to fee structuring, from a Singapore based hedge fund manager, and is a new twist on the “first loss” concept that has been seen to a limited extent elsewhere.
I wholeheartedly agree with the concluding words of this article where it states: “We need experimentation because the status quo is failing.” I think there would be very few dissenting voices to the view that the old 2 and 20 is an anachronism, and I particularly like the manner in which the approach taken by the manager in this article emphasises their desire to align their interests with those of their investors.