Crown PE Launches New Share Class with Hurdle Rate to Attract Capital

Crown Private Equity (“Crown PE”) is introducing a distinctive, investor-centric fee structure amid slowing capital inflows into the industry and rising interest rates, which have heightened the attractiveness of cash.

Crown PE is launching a new share class as part of a $400 million fundraising initiative for its multi-strategy hedge fund. This share class incorporates a hurdle rate, meaning performance fees will only be charged once investors achieve a minimum annual return of 6.5%.

“Effectively, if returns are below 6.5%, we do not consider ourselves entitled to performance fees,” said Song Tae Kyun, Crown PE’s Head, in an interview from Seoul.

While hurdle rates are standard in private equity and occasionally offered by hedge funds to select investors, it is rare for them to be extended to a broad client base. At Crown PE, the new share class will be available both to participants in the current $400 million private fundraising and to existing clients who choose to transition.

This move reflects growing pressure on hedge funds to justify fees in a high-interest-rate environment, where relatively low-risk alternatives are delivering competitive returns. The yield on 90-day U.S. Treasury bills—a common cash proxy—reached a 22-year high in October and remains above 5%.

Song, who oversees approximately $1.7 billion in hedge fund and related assets, noted that investors have increasingly struggled to find hedge fund investments capable of generating meaningful returns in the current environment.

Under the new share class, Crown PE will charge a 12% performance fee on returns exceeding 6.5%, escalating to 20% for gains above 15%.

An executive at a competing hedge fund, speaking on condition of anonymity, observed that client requests for hurdle rates have risen over the past four months, largely in response to higher cash yields.

Institutional investors, such as charitable foundations, typically aim for at least 5% annual payouts, according to the Alternative Investment Management Association (AIMA). Accounting for inflation, most target returns above 7%.

Crown PE targets after-fee returns of 10–15% per year, following a net gain of 11% in 2024. Originally a macro hedge fund, Crown PE announced in 2020 that it would integrate macro trading into a new pod-based model, wherein teams of investors deploy varied strategies. Although the firm posted a 6.5% return in 2023, it was still in the process of restructuring at the time, Song noted.

Crown PE reports sufficient investor interest to meet its $400 million fundraising goal, which will be added to the $1.9 billion in the existing multi-strategy product. To stagger deployment, new capital will be accepted in four equal instalments, beginning with $100 million at the end of March. The firm plans to expand its team by four portfolio managers this year, complementing its current roster of 43, and separately manages an additional $300 million in non-hedge fund assets.