January 29, 2015 / 2:11 PM / 5 years ago

Hedge fund profits drop 30 pct in 2014, bonus pool shrinks

LONDON, Jan 29 (Reuters) - The hedge fund industry’s profits fell by 30 percent to $21.9 billion in 2014 from $31.2 billion a year ago as poor returns led to lower performance fees, Citigroup said in a report on Thursday.

The drop means a significantly reduced bonus pool of $9.2 billion for the fund managers and analysts running the nearly $3 trillion industry in 2014, as compared with $23.1 billion in 2013, and an increased pressure on smaller hedge fund firms as they rely more on a fixed management fee for survival.

“With AUM (assets under management) at record highs, profits from management fee revenues now account for a larger share of total profits,” said Sandy Kaul, global head of business advisory services at the Wall Street bank.

The findings, based on a survey of nearly 150 hedge fund firms collectively managing $581 billion, showed that a fund needs at least $310 million to break even.

The hedge fund industry is important for the asset management industry’s ecosystem as even though hedge funds manage only 4 percent of the industry’s AUM, they account for about a third of its profitability, according to the report.

Hedge funds, as measured by industry tracker Eurekahedge, gained 4.4 percent in 2014, half the returns of a year ago. (Reporting by Nishant Kumar; Editing by Carolyn Cohn)

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