{"id":642487,"date":"2013-02-15T04:37:00","date_gmt":"2013-02-15T09:37:00","guid":{"rendered":"http:\/\/blogs.reuters.com\/globalinvesting\/?p=8638"},"modified":"2013-02-15T04:37:00","modified_gmt":"2013-02-15T09:37:00","slug":"lipper-aux-armes-millionaires","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/642487","title":{"rendered":"LIPPER: Aux armes, millionaires!"},"content":{"rendered":"

So far the impact of the\u00a0financial crisis has not hit the wealthy as hard as many\u00a0protesters would like. Even French millionaires have a found an\u00a0escape<\/a> from the modern-day guillotine that is a 75 percent tax\u00a0rate, in the shape of Russian president Vladimir Putin.<\/p>\n

But what about the level of charges that high net worth\u00a0individuals have to pay for investing in hedge funds? Even\u00a0though there has been some downward pressure on the annual\u00a0management fees charged, the most common model remains \u201c2 and\u00a020\u201d — 2 percent of the fund\u2019s assets and 20 percent of its\u00a0performance every year.<\/p>\n

In real terms, for a 50 million pound hedge fund that\u00a0returned 8 percent this could mean an annual fee of 1.8 million\u00a0pound. The equivalent mutual fund in the UK would typically\u00a0charge less than half this amount.\u00a0Perhaps this should be a reason to consider switching to a\u00a0different fund manager. But European investors have\u00a0traditionally been more persuaded by the argument that you have\u00a0to \u201cpay more to get more\u201d than by the notion that a fund manager\u00a0should minimize costs in order to maximise returns. (Having said\u00a0this, institutional investors are clearly more savvy when it\u00a0comes to fees; it helps that they have the clout, through the\u00a0volume of investable assets, to negotiate).<\/p>\n

Yet perhaps the winds of change are blowing. Cantab Capital\u00a0Partners has launched its Core Macro Fund with a \u201c1\/2 and 10\u201d\u00a0fee structure. The management fee of 0.5 percent (which also\u00a0covers back office costs) applies to those investing at least $50 million. Those investing less money will pay more, but\u00a0still enjoy the 10 percent performance fee.\u00a0It is hard to argue with Cantab Capital Partners\u2019s assertion\u00a0that this is \u201cexceptionally low cost\u201d for institutional\u00a0investors, not least when considering that the fund has daily\u00a0liquidity and there are neither redemption penalties nor gating\u00a0clauses. But for performance fee savvy investors, the fact that\u00a0there is no High Water Mark nor a hurdle rate cannot be ignored. And for those looking for signs of a revolution, Cantab\u2019s other\u00a0funds have not changed their fees to move in line with the new\u00a0fund.<\/p>\n

There are others that have grappled with the issue of\u00a0fairness in performance fees, either through the way the fund\u00a0itself is structured, as with Optcapital<\/a>,\u00a0or Aquamarine Capital\u2019s<\/a> variation on\u00a0the level of the performance fee. The Aquamarine Fund charges\u00a0either \u201c1 and 20\u201d or \u201c0 and 25\u201d depending on the share class,\u00a0with the performance fees subject to 4 percent and 6 percent\u00a0hurdle rates respectively.<\/p>\n

Products with a \u201cno win, no fee\u201d structure are not unique to\u00a0the hedge fund arena, with mutual funds from the likes of\u00a0Vinculum<\/a> entering the fray last year\u00a0and Bedlam<\/a> manning the barricades ten\u00a0years earlier. The Bullhound technology fund also tried this\u00a0back in 2000<\/a> and subsequently closed. Of\u00a0course mutual funds are also open to the \u2018hoi polloi\u2019 who, as we\u00a0all know, are already revolting, not least in Greece.<\/p>\n

PERFORMANCE FEES<\/strong><\/p>\n

<\/strong>There are some signs that millionaires are taking steps to\u00a0move away from hedge funds. Reuters recently reported<\/a> that Deutsche Bank’s Alternative Investment Survey showed that\u00a0family offices and high net worth investors now account for just\u00a04 percent of industry assets, down from 18 percent in 2002.
\nHaving said this, this looks to be a move in search of higher\u00a0returns, rather than away from higher fees.<\/p>\n

In the UK, the blow being struck against high performance\u00a0fees has come from a more surprising quarter. Here Independent\u00a0Financial Advisers (IFAs) are those with both the clout and, it\u00a0seems, the inclination to discourage use of such fees among\u00a0mutual funds. Their use is most common among funds seeking\u00a0absolute returns in all market conditions. Many of their\u00a0strategies mimic traditional hedge fund strategies, and many of\u00a0them have mimicked hedge fund fees too.<\/p>\n

IFAs, most notably Hargreaves Lansdown, have been publicly\u00a0sceptical of performance fee structures and it looks as though\u00a0asset managers in the UK have responded. Since the fee structure\u00a0was first allowed for open-ended funds in 2004, the number of\u00a0funds being launched with the fee rose to a peak in 2006, but\u00a0has since declined to the point where only two funds with this\u00a0structure were launched last year.<\/p>\n

Lest we lose sight of the millionaires, it is worth casting\u00a0an eye to Switzerland, where the Swiss Federal Supreme Court has\u00a0apparently taken up the mantle of the 1789 Assembl\u00e9e Nationale\u00a0and stated that retrocessions, or trail commission, received by\u00a0banks for asset management services belong to the client.<\/p>\n

Although the full implications of this move are still being\u00a0considered, Ernst & Young have helpfully carried out a survey<\/a> where respondents generally believe that the Court\u2019s move will\u00a0improve transparency in the industry, but still the price of\u00a0bank services (including private banks) are not expected to\u00a0fall. \u00a0The experience in Switzerland so far sounds a lot like that\u00a0in the UK with the Retail Distribution Review (RDR), which was\u00a0originally aimed squarely at the man in the street. Perhaps\u00a0millionaires and the downtrodden retail investor do indeed have\u00a0common cause.<\/p>\n","protected":false},"excerpt":{"rendered":"

So far the impact of the\u00a0financial crisis has not hit the wealthy as hard as many\u00a0protesters would like. Even French millionaires have a found an\u00a0escape from the modern-day guillotine that is a 75 percent tax\u00a0rate, in the shape of Russian president Vladimir Putin. But what about the level of charges that high net worth\u00a0individuals have […]<\/p>\n","protected":false},"author":7594,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-642487","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/642487","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/7594"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=642487"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/642487\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=642487"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=642487"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=642487"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}