Funds Hub

Money managers under the microscope

from Global Investing:

Funds will find a chill Wind in the Willows: Lipper

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"Asset managers are emerging from their comfortable burrow to face a battery of lights."

Sheila Nicoll, Director of Conduct Policy at Britain's Financial Services Authority (FSA), had perhaps been reading Kenneth Grahame before her recent speech, and her words are likely to have sent a chilly wind through the willows of the UK funds industry.

The warning "poop poop" being sounded by the regulator has been getting louder and louder. Indeed the FSA may even be traveling faster than Labour Party leader Ed Miliband, who has recently suggested that he would impose a 1 percent cap on pension charges.

It was not so long ago that the FSA took a very different approach and removed its rules on excessive charges on the basis that "there may be no appropriate benchmarks" to determine this. They went so far as to say that "we do not act as a price regulator, and we do not consider it appropriate for us to take such a role."

How much do UK investors care about costs?

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As the debate on fund charges heats up, the appeal of having a barometer to gauge investors’ attitudes to fund costs has risen. Ideally this would go beyond opinion polls and show not just what investors think, but what they actually do.

One way of measuring this is to look at the assets invested in index tracking funds (where minimising costs is a core part of the product) and compare this to funds of funds (where the importance of professional fund manager selection entails an additional cost).

With 30.5 billion pounds invested in the former and 56.6 billion pounds in the latter as of November 30 2011, it would seem that retail investors in the UK are almost twice as likely to pay more for active management and fund selection than to minimise costs and seek to mimic the returns of an index. A similar picture is revealed for sales activity in 2011.

A choice between risk and return?

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By Dunny P. Moonesawmy. Head of Fund Research for Lipper in Western Europe/Middle East and Africa. The views expressed are his own.

Hedge funds have delivered decent risk-return results over the past ten years. And as transparency and liquidity increased post-credit crisis, they have regained their appeal as providers of absolute return opportunities for investors. In addition, an increasing lack of market visibility globally has played to hedge funds’ supposed strengths, with total industry assets under management now exceeding the $2 trillion, according to Hedge Fund Research.

Morning Line-Up: Thoroughbred, fees, fixed-income funds

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News and views on the asset management industry from Reuters and elsewhere:

Investors in Thoroughbred fund granted early exit – NY Times

Yes, you can lose money in fixed-income funds – WSJ

Who’s who in the latest insider trading arrests – Reuters

The incredible shrinking fee – WSJ

Smaller hedge funds to enjoy inflows – Financial News

How to make money in 2011 – Daily Mail

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

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.. 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.

Smith attacks hedge funds’ 2 and 20

Here’s the link to Terry Smith’s blog attacking the “unsupportable” practice of hedge funds charging their clients fees of 2 and 20 (2 percent annual and 20 percent performance).

Smith compares the maths that show a $1,000 investment in Berkshire Hathaway in 1965 (when Buffett began) would last year be worth $4.3 million, with a hedge fund charging 2 and 20.

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