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Susan Edmunds
Susan Edmunds
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Performance fee structures shortchanging investors

Monday 28th of September 2015

Morningstar director of manager research ratings Tom Whitelaw said there were a number of things many performance fee-charging funds were not doing well.

First was equity managers not benchmarking against an equity index, instead using a measure such as the official cash rate plus 5%. “Why should an equity manager receive a fee just because equity markets go up? If the market is up 20% and they are up 10% they take a fee even though they are behind.”

The second was that the high water marks – the standard set by previous performance, which managers have to beat to earn their fees – should not be able to be reset.

He said if they were, that could mean an investor could start with $100,000, lose $20,000, have a manager reset the high water mark to $80,000 and then have to pay performance fees when the investment returned to its original $100,000.

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