The sad reality of the local benchmarking scene
The review found that when it comes to benchmarking of single asset class, fully invested and liquid (‘traditional’ or marketable securities) portfolios and funds, local practices often serve fund managers far better than their clients. It accuses fund managers of choosing easy-to-beat benchmarks for single asset class funds, and collecting fees without adding any value.
Russell NZ director Matt Arnold who authored the report says, for most traditional asset classes and market segments, there is no need to adopt anything other than standard ‘off the-shelf’ indices which are independently researched and robust as benchmarks. However, many local retail investors are in funds with inappropriate, self-selected performance fee benchmarks, leading to hedge fund-like fees for run-of-the-mill equity and diversified funds.
Beta returns, alpha fees
“The most glaring example involves the use of benchmarks that bear little or no resemblance to the underlying assets of the fund or portfolio. Often used as a performance fee hurdle, ‘cashplus’ benchmarks for fully invested equity portfolios represent the most egregious example of benchmark mismatch, with the impact on investors being that they end up paying hedge fund-like fees for what amount to plain vanilla, run-of-the-mill equity funds”, he says in the report.
Click the button below to subscribe and will have free unlimited access for a limited time to full article and all other articles on the site.
You will also be able to comment on articles on Good Returns.
![[Weekly Wrap] KiwiSaver in play; but outcome unclear](https://goodreturns.publit.io/file/c_fill,w_300,h_200/0ad582e4-c9a3-4692-bbe2-62d928f77fd2.jpg)
