The firm says fund managers, including hedge fund managers, whose funds have been struggling in the current market, are looking to re-assess the way they charge funds for their services in order to survive.

Where previously large but relatively transparent performance-related payments were made, the financial market turmoil has meant that less returns are being generated, targets are not being met and hurdles are not cleared, prompting a rethink of fee structures.

Fund non-executive directors have a duty to actively review the performance of their fund managers and to step in if new, complex and sometimes obscure fee-structures are not in the interests of investors.

'The past year has been dire for many fund managers and hedge fund managers, and it is understandable that they want to re-assess their performance-related fee structures,' says Wedlake Bell partner James Duncan. 'In many cases it boils down to changing the fee structure or shutting up shop as they struggle to cope with overhead, adviser and compliance costs.

'As understandable as the fund managers' plea is, however, non-executive directors need to be aware that if fund managers' fee structures are incompatible with their own duty of care to investors, they risk being the target of activist investors and could even be personally liable if they cannot justify new fee structures as being in fund investors' interests.'

Wedlake Bell says investors now have increased negotiating power and confidence. When during good times investors received great returns for their investments, they had little room to negotiate the fees they paid their fund managers.

However, as fund managers struggle to keep redemptions manageable and uncover new opportunities, investors have realised that they could have more say over what happens with their investments and the management of the fund. Non-executive directors are an easy target for recovering any losses when performance is heading the wrong way.

Wedlake Bell warns non-executive directors from taking a back seat or adopting a wait and see approach. Any directors found to be napping or not acting independently would probably face successful investor claims, the firm says.

'It is a difficult situation for non-executive directors as they are essentially faced with a conflict of interest between their duties to investors and their legitimate relationships with the fund manager and even other funds,' Duncan says. 'They must be reminded, however, of their duty to be independent and make the best possible decision in the worst situation.'

Wedlake Bell adds that this is not the case for all funds, as many funds are offering very good fee structures in order to retain investors in the fund as well as developing new structures for different strategies in a changed market.