Even as global hedge fund assets have nearly halved now from a peak of over $2 trillion, the industry is attracting newcomers as jobless bankers and traders launch new funds to compete with the over 12,000 already in existence, speakers at the Reuters Private Equity and Hedge Funds Summit said.

Many of the new players are offering to manage funds for less than the typical base fee of 2 percent of assets plus another 20 percent of returns that exceed pre-determined levels. Some star managers have fees that far exceed the typical 2-20 structure.

"There are some very high fee structures out there. If you're at 3 and a half and 45 and you are down 40 percent last year, I think it's just taking the mickey," said Mark Kary, chief executive at London-based Polar Capital.

Existing players face stiff competition from not just successful managers, but also from startups, industry executives said.

"We are seeing existing entities that have been around a while and have seen their assets shrink, considering the lower fees in order to retain investors," said Low Jeng-tek, the Singapore-based head of Gems Advisors (Asia), a fund-of-hedge-funds manager.

"I would imagine a good entity that specialises in distressed debt in Asia wouldn't need to reduce fees, that would not be their selling point. (But) if you are an equity long/short you may consider," he added.

Andy Mantel, managing director of Greater China-focused Pacific Sun Investment Management, who charges fees of '1.5-20', said investors would continue to pay for performance.

"I don't see the whole industry going to 1 and 10. At the end of the day, if the manager's doing a good job I don't think that investors mind paying," he told the Reuters Summit in Hong Kong.

NEW FEE STRUCTURES

Shirin Ismail, head of absolute returns investment strategies at Fullerton Fund Management, a unit of Singapore state investor Temasek, said an estimated 15 percent of existing hedge funds have started offering new fee structures that may include lower management fees in return for a longer lock-up period.

"In general we noticed that if there is a new fund, they are offering maybe 1.5 percent fee or 2 percent with performance fee of 15 percent," she said

Spurring the new wave of fund formation is the large number of retrenched proprietary traders and bankers who have few alternatives other than setting up their own money management firms using their own savings and contributions from friends and associates.

They are being joined by counterparts who kept their jobs but are chafing at bonus cuts and want to strike out on their own as they see opportunities in the current market turmoil.

Peter Douglas, founder of hedge fund consultancy GFIA, said the number of Asia-based hedge funds could increase by 10 percent this year from the current 700 as newcomers outnumber those exiting the industry.

"The big financial firms are shedding muscle, not fat, so there are good people out there on the street who have experienced relationships and a few years of accumulated bonuses in the bank."

Additional reporting by Laurence Fletcher and Simon Meads in London and Kevin Plumberg in Hong Kong

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