Funds Hub

Shocking.. Toxic.. Nasties.. Devastating.. Leeches..

.. Some select phrases from this morning’s Daily Mail pop at greedy fund managers who rake in fees whether or not they’re beating the market. It might read a bit like an advertiorial for passive managers like Vanguard (which gets an unusually high number of prominent name checks) but it won’t be comfortable reading for other asset management execs.

The paper’s salvo gives a kicking to firms like Axa and Henderson and makes much of the secretive pay packages earned by the fundies and the marketeers. It also, somewhat bizarrely reckons the grey-suited long-only managers looking after your ISA are responsible for most of the yachts bobbing gently in the Marina at Monte Carlo.

It has been a long-running war of words since the financial crisis and it’s fair to say that active managers who fail to deliver do look increasingly isolated. It has been an immensely difficult market to call and more than ever outperformers have a patina of luck around their achievements. People like ‘safe-hands’ Philip Gibbs have stumbled and Neil Woodford’s jammy sale of BP at the end of last year has been the engine behind a rally back from ho-hum performance.

For balance, the Mail does note that index funds will, by definition always tend to underperform the benchmark once fees are taken into account, but nevertheless, the passive houses have reaped the benefits and have even started to devise ways to hold onto the money which gravitated their way in the market’s darkest days.

Some active funds, meanwhile, have sought to re-align themselves with their skittish customers by shifting the weight of charges towards performance fees, earned on positive returns, while some brave souls have allowed clawback of fees in down years.

Our own funds research firm Lipper has run the rule over the evolution towards performance fees and has produced a report which I’ve copied below. Their conclusion is pretty clear: performance fees in themselves do not solve the problem; if you really want to win back the clients, then you have to become  a client.

In other words, stick your own money in, and manage it like your life (actually) depended on it.

Quality control

After last year’s record poor performance, investors may view a warning that the quality of hedge funds could get worse with a certain degree of irony.

However, according to the Hedge Fund Standards Board’s chairman Antonio Borges, this is one of the negative effects on the industry that proposed EU laws could have.

What he calls the ‘protectionist element’ of the draft — whereby the EU market could be shut to fund managers from outside unless their host countries adopt similar rules — could mean large hedge funds in London gain a comfortable market position without having to face up to competition from the huge U.S. hedge fund industry.

“It’s not going to kill the industry, because the industry will survive,” Borges told a briefing at Axa Investment Managers this week.

“But there will not be competition from U.S. managers. The quality of the industry will deteriorate quite markedly.”