13th September 2016
Research by multi asset manager Architas has shown that 97 out of 121 retail funds which charge a performance fee underperformed the MSCI World Index over 3 years*.
The funds which levy a performance have a Total Expense Ratios (TER) almost 40% higher than the average fund from the IA UK All Companies Sector.
The average TER for a fund with a Performance fee was 1.39% compared to 1% for the IA UK All Companies Sector.
Adrian Lowcock, investment director, Architas says: “Investors are being charged performance fees and in return they expect to get something extra, a better return. However the majority of funds which have charged a performance fee have significantly lagged behind the MSCI AC World Index. In spite of this investors are being charged the additional fee.”
“There is no alignment of interests with the investors and the fund manager when the majority of performance fees are charged. In the good years you could be paying 4% or more to a fund manager, but that manager does not refund you the fees in the bad years.”
“To make matters worse, there is a clear lack of transparency in performance fees. Trying to find out when a performance fee has been charged and the impact it has on the overall costs to investors is difficult.”
*Source: FE Trustnet, performance data was on total return basis to the end August 2016