That comes amid weak performance and a somewhat gloomy outlook, as just 15 percent said they met performance goals, with expectations evenly split about the future.
Market "valuations are above historical levels," Steinbrugge said. "That is also causing investors to negotiate fees, because they believe the returns from hedge funds are going to be lower going forward than they were five years ago."
Though the industry has eked out gains over the past four months, it still trails the broader market.
The HFRI Fund Weighted Composite Index, used as a benchmark for industry performance, gained 1.63 percent through the first half of 2016. By comparison, the S&P 500 stock market index rose 3.82 percent in terms of total return.
Hedge funds, however, continue to attract investor cash, though at a slower pace than passively focused exchange-traded funds. ETFs now narrowly trail hedge funds in total assets and have pulled in about $118 billion in fresh investor cash this year.
"Managers recognize that in order to retain investors and continue to receive new capital, they will need to overcome significant investor concerns about the asset class," Amy Bensted, Preqin's head of hedge fund products, said in a statement.
As things stand now, the larger the investor, the better chance of negotiating on fees. Clients with $100 million already are getting discounts that can reach half off the standard 2-and-20 structure.
It will be a tougher slog for those who have only a few million on hand, though that dynamic is changing.
"The person who's allocating a million dollars, they're pretty much going to have to accept what the standard fee is in the documents," Steinbrugge said, though he added that institutional customers have more leverage with fund managers.
"The industry used to be dominated by family offices and super-high net worth individuals. Today's it's dominated by corporate pension funds, public pension funds, sovereign wealth funds that are used to aggressively negotiating fees with managers," he added.
Hedge funds have to be careful, though: Cutting fees too much actually can be counterproductive.
"I still see investors willing to pay if they think the hedge fund can deliver performance," Steinbrugge said; "Those hedge fund managers who come out with really low standard fees, I don't think it helps them. As a matter of fact, it often does the opposite. People view it as a lower-quality organization."