Far from straightforward, performance fees revealed by study to be a dog’s breakfast
Sep 28th, 2008 | Filed under: Performance, Analytics & Metrics, Today's PostWhile investment managers have been the primary advocates of performance-based fees, there is little doubt that institutional investors have given their tacit approval to them on the basis that they align the interests of manager and client. These institutions look particularly smart when their manager hits a rough patch (see Friday’s post).
A recent study by accounting firm Grant Thornton points to lower fees as a major incentive to shift to a performance fee arrangement:
“Assets under management and total fees had reduced dramatically from 2000 to 2003…Boards, in turn, saw performance fees as attractive since, depending on their structure, they could reduce total expense ratios in difficult times such as those that they had recently experienced. (Generally, when a performance fee is introduced, the basic management fee is adjusted downwards, thereby reducing total fees in a period when a performance fee is not earned.)”
The study goes on to list a variety of different possible aspects of a performance fee contract:
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