Performance Fees

turbobob

There are some funds in the absolute return sector that don't have performance fees. For example L&G Diversified AR. Don't know of any way to screen them easily off the top of my head.. You could just go through each one in this list if you had the inclination - http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/?companyid=&sectorid=136&tab=prices

princeofpounds

It's the absurdly low hurdles that generally makes them a nonsense.

A low hurdle does NOT constitute a nonsense for these sorts of funds. If you think it does, then I fear that you misunderstand the very core of these products.

The fund has returned only 1% in total over the last 6 months compared with a rise in the FTSE over the same period of 15%

The FTSE constitutes pure exposure to market risk. You get rewarded (or hurt) for this exposure.

A fund like Absolute Alpha takes little to no market risk. Comparing it to a market investment is like comparing saying 'man utd are rubbish for winning 1-0 because leicester rugby won 35-5'. They are TOTALLY different games.

Although absolute alpha uses market instruments it will, broadly speaking, be as short the market as it is long, and so have no net exposure.

If the market was down 15% you'd be on here saying AA was great if it was down 1%. But that would have represented a real failure.

StevieJ

princeofpounds wrote: »

I wouldn't suggest anyone gets an absolute return fund unless they have a very large amount of money to diversify. The main benefits of absolute return strategies are not the actual returns themselves (which are often unspectacular) but the fact that they are very uncorrelated to general markets and so diversifying into them provides a better risk/reward balance (NOT a better reward). An individual is unlikely to notice or properly allocate their assets to gain such a benefit.

Not quite with you there, how much is a very large amount of money? and surely diversity is useful for any reasonably sized portfolio, especially considering the correlation between world markets, bonds, property and UK equity in the last crash.

RayWolfe

princeofpounds wrote: »

Frankly I think the commentary above is quite wrong - performance fees can help better align the interests of manager and investor, but only if appropriate and well-designed.

Can you tell how? You make some good points but I don't understand that one. If the manager gets 1.5% (or whatever) of the value each year, his interest and mine are identical, i.e, he improves the fund, I get more, he gets more. If he does poorly, I get less, he gets less.
If he sets a value ABOVE A BENCHMARK he gets his 1.5 and his performance fee ... even when the fund falls! He makes money, I LOSE MONEY.
You are surly aware of the incredible low hurdles that are set and you know the industry was doing quite well before this new fashion arose. Do you think that this is such a good idea that all funds should do it?
As for, it's all in the contract, disclosed at the outset, I think that the mis selling scandals in this industry could all be said to have been in the original terms but were the terms fair or reasonable.
It's a funny old industry that sets out to skin it's customers.

RayWolfe

RayWolfe wrote: »

Do funds with performance fees outperform funds without?

No one has had a go at this question? Anyone know?

Rollinghome

princeofpounds wrote: »

A low hurdle does NOT constitute a nonsense for these sorts of funds. If you think it does, then I fear that you misunderstand the very core of these products.

You talk as if "these products" have a single identity. They don't. For the investor paying a performance fee for a return below the return on cash and yet retaining considerable risk is a nonsense.

A fund like Absolute Alpha takes little to no market risk.

Complete nonsense. I suggest you look more carefully.

Rollinghome

RayWolfe wrote: »

No one has had a go at this question? Anyone know?

I haven't seen any evidence of that. If they did then that would suggest that the managers who don't charge performance fees weren't really trying as hard. I don't think that's likely.

Mark Littleton was running Blackrock UK without any performance fee before Abs Alpha but I expect he still turned up for work.

StevieJ

Rollinghome wrote: »

You talk as if "these products" have a single identity. They don't. For the investor paying a performance fee for a return below the return on cash and yet retaining considerable risk is a nonsense.
Complete nonsense. I suggest you look more carefully.

I think he is either a fund manager or someone trying to justify their investment in one of those funds

StevieJ

turbobob wrote: »

There are some funds in the absolute return sector that don't have performance fees. For example L&G Diversified AR. Don't know of any way to screen them easily off the top of my head.. You could just go through each one in this list if you had the inclination - http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/?companyid=&sectorid=136&tab=prices

Classic name for a fund manager,
Gavin Launder

Mikeyorks

StevieJ wrote: »

I am looking for an absolute return fund without one, any ideas?

There are a number ..... Baring Absolute Return and Newton (BNY Mellon) Real Return .... to name a couple. But you need to plough through the list at eg HL to weed them out ..... don't know of any other way.