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Pie Funds cuts performance fees

Fund manager Pie Funds has announced it is removing performance fees from its products, a move it says could spark hard questions of other managers.

Thursday, June 7th 2018, 4:00PM 2 Comments

by Susan Edmunds

From April 1 next year, Pie Funds will charge one annual all-inclusive fee, ranging from 0.7%  for its conservative fund to 1.85% for the specialist small-cap funds.

It previously had performance fees up to 15% and management fees up to 1.5%.

Founder Mike Taylor said it was a bold move that showed Pie Funds cared about client returns.

He said an increase in the management fee charged would cover increasing costs relating to compliance, legal, investment accounting, audit, transaction and trading costs, the FMA levy, licencing costs, registry, trustee and supervisor expenses.

Excluding existing performance fees, the new all-inclusive fee is higher than the management fee currently charged for all funds. If funds do not perform, investors will pay higher fees.

It could mean less revenue for Pie Funds in times of high-performance, Taylor said. But he said Pie Funds would remain profitable.

For a product such as Pie’s Growth Fund, for instance, which has had an average annualised return since its 2007 inception of 16.1% a year net of fees, if returns are 15% under the new structure, a client will be around 1.9% a year better off.

Taylor said Pie Funds would remain focused on outperforming the market. “We now have over $100 million of our directors', staff and shareholders' money invested in the funds. That means our goals are very much aligned with those of investors, including lower fees and strong performance. Part of the investment team’s remuneration will continue to be linked to the performance of the funds. With plenty of skin in the game,the incentive to outperform others is absolutely still there.”

Taylor said fee changes required supervisor approval and three months' notice.

He said it was simpler to make the changes at the end of the financial year at March 31.

He said the business had taken the view that industry fees were too high.

"To make a change, we need to be proactive and practice what we preach. Removing our performance fee is a big step in that direction."

He said, even if it was assumed that the market was near the end of a bull run, and might be set to deliver fewer performance-based returns, there would always be another bull on the horizon.

"If the client has a good outcome it's good for the business."

Taylor said it would send "shockwaves" to other providers, particularly those who had been critical of Pie's fee structure.  "Now they're gone some of them will be forced to think about it."

Many investors did not understand how performance fee structures worked, he said.

Tags: pie funds

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Comments from our readers

On 8 June 2018 at 12:03 pm Pragmatic said:
Performance fees are great for all participants (with the usual caveats) when Managers outperform. Fees for mediocrity remain a burden
On 11 June 2018 at 9:17 am smitty said:
Kudos to you PIE for being a first mover, but please dont infer that you are the leading light in erasing performance fees. "Taylor said it would send "shockwaves" to other providers", you moved early becuase we all know that the FMA was going to be looking into performance fees more closely, specifically the level, and the rather absurd benchmarks that needed to be beaten, OCR +2% anyone? If I was a PIE client, I would be asking why that sat back and reaped their close to 4% returns since the GFC... (Admittedly not every year of course, but you get my point, remember the GFC occurred 10 to 11 years ago...

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