British Virgin Islands: Long Live The King: Why Lebron James Helps Justify Performance Fees

Last Updated: 27 June 2016
Article by Philip Graham

For those that are not aware, LeBron James just transcended his sport. Playing against a team that some have described as the best ever and down 3-1 in the Finals (a position that no other team in NBA history has ever come back from), he produced some of the greatest basketball the world has ever seen. Hell, some of the greatest sporting performances the world has ever seen.

He threw up numbers that are mind-boggling and yet he was far more than that. Leading a decidedly average supporting cast, there was something about this Cavaliers team that clearly just kept on believing in their superstar.

Because that's what he is.

One of the tired narratives that you regularly hear when discussing sport is why people who throw/kick/catch a ball for a living deserve to be paid such ridiculous sums of money.

Now there are a number of retorts to this (just ask any resident of Cleveland right now whether LeBron's US$24 million salary is deserved and frankly they'll open their wallets and hand over even more), but the one I'd like to personally focus on is the level of competition professional athletes go through to get to where they are. They are competing with hundreds of millions of others (in some sports, you could argue billions), all of whom want to play this game at the highest level, all of whom will give their blood, sweat and tears to get there and yet it is these chosen few that rise to the top. The very best of the best.

And yet.

There are certain athletes that when facing others at the very highest level can still make every other player in their sport look average. This shouldn't be possible and frankly it is super-human. When comic books are written about the likes of Superman, they are inspired by human beings who rise up and defy conceptual belief.

There is nothing more incredible than watching the likes of LeBron, Tiger Woods (pre the run-in with the tree), Usain Bolt, Lionel Messi, Serena Williams or Muhammad Ali simply dominate their sports and stand proudly as arguably the greatest collection of athletes humanity has pulled together in our 200,000 years on this planet1.

Can you really put a price on the value of someone that is better than the other 108 billion people who have walked the Earth?

Similar commentary is being widely heard in our own circles right now. The negative attitude to fee levels is at an all-time high in a macro-environment that is undoubtedly going to result in one of the worst years on record for the $2.9 trillion hedge fund industry. In a great article from Andrew Beer of Beachhead Capital Management2 in the FT, Mr Beer states the following:

"Twenty years ago, the "2 and 20" fee model made a lot of sense because most hedge funds were small. The 2 per cent management fee on a $10m fund covered the rent and paid for a hire or two.

The real money was made on the performance fees. Today, that $10m fund is $10bn and the fee structure is the same. The industry has matured, but the fee structure has not. This is a big problem for three reasons.

First, high management fees distort incentives.

For a $10bn fund, a 2 per cent management fee equates to $200m for the hedge fund company per year. Generously assume $25m in operating costs, and the manager still clears $175m.

The management fee is now a big, big profit centre. Instead of shooting the lights out, the manager's incentive is to keep the game going.

The solution is that, as funds grow, management fees should decline — and disproportionately for early investors. A sliding scale rewards early investors, who then have an incentive to remain invested and preserve their low-fee status.

Second, incentive fees without a hurdle — the level of return a fund must beat before it can charge additional fees — is pure giveaway.

Performance fees should provide incentives to outperform, not just show up. In 2013, investors paid billions in incentive fees to long-biased hedge funds simply because the markets were up. Incentive fees should be paid over a hurdle. Deliver alpha and the performance fee makes sense.

Third, align lock-ups with incentive fees."

There is no doubting that we at Harneys are seeing the imposition of a sliding scale of management fees based around increasing AUM more and more and that should be encouraged.

But for me, when managers earn performance fees (above a hurdle and high water mark of course) at any point in time, but especially in this current climate, they deserve every penny they earn. Looking back through the achievements of the likes of George Soros, David Tepper, Kenneth Griffin and John Paulson, you have to keep in mind that whilst these guys have earned vast fortunes from their profession, they have seen (and most importantly, acted upon) aspects of the economic climate that others have simply not picked up on, despite the vast majority of the data they rely on being publically available to everyone.

Now whilst these accomplishments are often much trickier for any of us mortals to understand as compared to a man putting a ball in a basket, that does not make them any less impressive; someone's magical deft touch with their foot is another person's mental leap to make the trade that others can't even envisage.

So here's to the super-humans we share our planet with, in whatever form we find them.

And maybe, just maybe, this X-Men thing isn't so fanciful after all.


1. This list is clearly put up for very serious debate. Preferably with a beer in our hands.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.