Hedge fund managers competing for institutional investors are under constant pressure to lower fees.  In addition, to keep the manager incentivized even as assets under management rise, investors increasingly seek to prevent the management fee from becoming a profit center for the manager.  Consequently, in order to attract capital and satisfy investor demand, hedge fund managers may consider implementing a tiered management fee – either individually with certain investors or as part of their funds’ general offerings.  According to a recent Seward & Kissel survey, 19% of funds studied implemented a management fee rate that tiered down to lower rates as assets surpassed certain benchmarks.  See “Seward & Kissel New Hedge Fund Study Identifies Trends in Investment Strategies, Fees, Liquidity Terms, Fund Structures and Strategic Capital Arrangements,” Hedge Fund Law Report, Vol. 8, No. 9 (Mar. 5, 2015).  This article, the first in a two-part series, examines the prevalence of tiered management fee structures in the hedge fund industry, the rationale for offering tiered management fees and the elements of tiered management fee structures.  The second article will address investor response to tiered management fees and practical considerations for hedge fund managers implementing such structures.  For more on management fees, see “Citi Survey Finds Large Drop in Hedge Fund Profitability from 2013 to 2014, Highlighting the Importance of Management Fee Revenue and Its Impact on Product Strategy and Management Company Valuations (Part Two of Two),” Hedge Fund Law Report, Vol. 8, No. 7 (Feb. 19, 2015); and “Eight Refinements of the Traditional ‘2 and 20’ Hedge Fund Fee Structure That Can Powerfully Impact Manager Compensation and Investor Returns,” Hedge Fund Law Report, Vol. 4, No. 17 (May 20, 2011).