Hedge fund sales fees and the flow of funds around the world

This paper presents evidence on hedge fund sales fees (sometimes viewed as "kickbacks") around the world. Using a novel dataset of onshore and offshore Hedge Funds from 69 countries, over the time period 1998-2020, we show that sales fees have been extremely common, particularly among offshore funds. Also, we show the use of sales fees was more common in the 1990s and has dropped off in the 2000s and 2010s. We present evidence that shows sales fees impact fund sales but not fund performance. Sales fees flatten the flow-performance relationship, meaning that capital is less likely to leave a fund in response to poor performance, and this reduction is due to sales fees. Funds with sales fees have significantly more performance persistence since they are less likely to see larger capital withdraws. We present a wide array of robustness checks and discuss policy implications associated with the use and reporting of sales fees.