Fund houses grapple with fees
Executives at last weekÆs 'Fund Management in Flux' conference in Hong Kong talked about how they'll get paid next year; plus photos from the event.
Traditional fund-management companies must consider new ways of pricing in order to compete and better serve clients, says Henry Hamrock, head of business development for North Asia at Western Asset. He told an audience of industry executives last week that Western is considering performance-based fee structures, as part of a panel discussion on fees.
AsianInvestor organised a one-day event for industry leaders in Hong Kong last week, titled æFund Management In FluxÆ. For photographs of all the speakers, please see below.
On the alternative investment side, fees are uniformly in decline, whether clients are funds of hedge funds, pension funds or corporations, says Jo Murphy, regional marketing director at Triple A Partners. ôWhatÆs surprising is how quickly this has happened,ö she says.
Susan Gordon, partner at Deacons, adds that private-equity and hedge-fund managers are keen to retain assets and are therefore renegotiating contracts with clients in order to slash fees in return for extended lock-up periods.
Murphy says the very best managers can still charge high fees û more than the industry standard of a 2% annual management fee and a 20% performance fee above a watermark. She recalls how in 2004 SAC was able to charge 5/50 fees û which brought gasps from the audience. Those levels arenÆt returning but the minority of funds that have performed reasonably well, or at least held steady in 2008, will command a premium in 2009.
ôBut if youÆre a beta monkey, thereÆs no way you can continue to charge 2/20,ö she says.
The panel was chaired by Markus Ohlig, regional managing director at Greenwich Associates, who asked whether performance-based fees could compensate for conditions in which even successful long-only fund managers are punished because of market declines.
Hamrock says yes, if revenues are properly structured to compensate the right people at a fund house: ôFirms must combine asset-based and performance-based fees to avoid a culture of focus on asset gathering.ö
Although institutional investors in the United States are now paying traditional fund managers performance-based fees, no one in Asia is. Hamrock says investment consultants are reviewing the idea, and hopes that once markets stabilise and investors can consider longer-term reviews of strategy, they can think about adopting new methods of paying for performance. He also suggests clients take a long view, not just about asset allocation, but about rewarding managers û for example, by judging managers (and paying them) based on a multi-year cycle, not just year to year.
There have been examples in the region of retail products charging performance fees, says Susan Gordon, with fees based on how the fund performs against a benchmark. But she wonders whether managers will stick with this, given they are all underwater now, and therefore not earning anything.
The panellists agreed that 2009 will not see revenues improve, and that firms are struggling to maintain compensation to their best performing people. They agreed that the industry has developed an unhealthy sense of entitlement regarding bonuses, which could shock a lot of people at the end of this year when bonuses arenÆt paid. They predict more outsourcing, more use of soft-dollar commissions, consolidation among fund product ranges, and greater demand among institutions for commingled products rather than expensive bespoke ones.
AsianInvestor organised a one-day event for industry leaders in Hong Kong last week, titled æFund Management In FluxÆ. For photographs of all the speakers, please see below.
On the alternative investment side, fees are uniformly in decline, whether clients are funds of hedge funds, pension funds or corporations, says Jo Murphy, regional marketing director at Triple A Partners. ôWhatÆs surprising is how quickly this has happened,ö she says.
Susan Gordon, partner at Deacons, adds that private-equity and hedge-fund managers are keen to retain assets and are therefore renegotiating contracts with clients in order to slash fees in return for extended lock-up periods.
Murphy says the very best managers can still charge high fees û more than the industry standard of a 2% annual management fee and a 20% performance fee above a watermark. She recalls how in 2004 SAC was able to charge 5/50 fees û which brought gasps from the audience. Those levels arenÆt returning but the minority of funds that have performed reasonably well, or at least held steady in 2008, will command a premium in 2009.
ôBut if youÆre a beta monkey, thereÆs no way you can continue to charge 2/20,ö she says.
The panel was chaired by Markus Ohlig, regional managing director at Greenwich Associates, who asked whether performance-based fees could compensate for conditions in which even successful long-only fund managers are punished because of market declines.
Hamrock says yes, if revenues are properly structured to compensate the right people at a fund house: ôFirms must combine asset-based and performance-based fees to avoid a culture of focus on asset gathering.ö
Although institutional investors in the United States are now paying traditional fund managers performance-based fees, no one in Asia is. Hamrock says investment consultants are reviewing the idea, and hopes that once markets stabilise and investors can consider longer-term reviews of strategy, they can think about adopting new methods of paying for performance. He also suggests clients take a long view, not just about asset allocation, but about rewarding managers û for example, by judging managers (and paying them) based on a multi-year cycle, not just year to year.
There have been examples in the region of retail products charging performance fees, says Susan Gordon, with fees based on how the fund performs against a benchmark. But she wonders whether managers will stick with this, given they are all underwater now, and therefore not earning anything.
The panellists agreed that 2009 will not see revenues improve, and that firms are struggling to maintain compensation to their best performing people. They agreed that the industry has developed an unhealthy sense of entitlement regarding bonuses, which could shock a lot of people at the end of this year when bonuses arenÆt paid. They predict more outsourcing, more use of soft-dollar commissions, consolidation among fund product ranges, and greater demand among institutions for commingled products rather than expensive bespoke ones.
 | PATRICE CONXICOEUR HSBC Global Asset Management |
 | NAOMI DENNING Watson Wyatt |
 | JAME DIBIASIO AsianInvestor |
 | KHIEM DO Baring Asset Management |
 | VINCENT DUHAMEL Sail Advisors Limited |
 | KEVIN HARDY Northern Trust Global Investments |
 | JOHN LAU SEI Investments |
 | JO MURPHY Triple A Partners |
 | MARKUS OHIG Greenwich Associates |
 | TAHNOON PASHA Manulife Asset Management |
 | DEAN STEWARD Macquarie Fund Management |
 | JAMES WALKER Clifford Chance |
 | MARTIN WHEATLEY, JP Securities and Futures Commission Hong Kong |
 | FLORENCE YIP PricewaterhouseCoopers |
 | CHRIS RYAN Fidelity International |
 | DAVID RUSSELL Citi |
 | LIEVEN DEBRUYNE Schrode Investment Management (Hong Kong) Ltd |
 | JOE NGAI McKinsey & Company |
 | SUSAN GORDON Deacons |
 | HENRY P. HAMROCK Western Asset Management |
 | RITA RAAGAS DE RAMOS AsianInvestor.net |
 | CATHERINE SIMMONS State Street Bank and Trust |
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