New funds cut fees to counter old losses

The moves break with a tradition of hedge fund managers simply setting up a new fund, thereby avoiding the so-called high water mark – the rule that 20 per cent performance fees are paid only on profits that beat previous highs.

“Everyone is on to that little scheme,” said David Smith, who oversees $28bn in hedge fund investments at GAM. “If you were a savvy investor, you would demand the high water mark be carried over.”