How fund managers are surviving when their fee income falls
Wednesday 1 July 2009
I'm not picking on Lion Trust fund managers in particular but simply as an example that maybe happening elsewhere with those fund managers who are looking after your investments.
Citywire, state that “Liontrust continues to reel from the shock departures Jeremy Lang and William Pattisson with assets under management at the boutique sliding £2.8 billion over the year….The fall in assets has continued into the new financial year with assets under management standing at £1.2 billion on 9 June.”
But here’s the sting in the tail “On a brighter note performance fees increased by 10% to £16.2 million and the group remains in a strong financial position….The group will be more dependent on performance fees and sales for revenue increases than has historically been the case.”
So what does this mean to investors?
If their funds under management have fallen, so too has been their annual management fees. To make up these falls, they intend to generate more revenue through performance fees. That means the investors on average must pay more. It's simple mathematics.
The fund managers may say, that’s OK to pay more because “we are performing better”. This is where I have serious issues over fund manager stories. If they can perform better for their investors, why did they not do so to-date? What are they actually doing now to capture these excess returns so they can be paid on their performance? How can you trust what they say?
The empirical evidence is a little damning. Very few fund managers beat the market average over time. So whilst in the odd year they, along with other fund management groups, might beat the market, the problem for investors is that they do not know which fund manager or which fund or which year these fund managers will do so in advance. Telling investors they had a good year last year is nonsense.
So what’s my point for investors?
These are trying times for fund managers. Like any business that has falling revenues, they will look for different opportunities to make up revenue. That means the investors can end up paying more on average. Every investor therefore should be looking very carefully at the report and accounts of their fund managers to help them decide what plans the fund managers have for the future. For example, does your fund manager want to introduce performance fees?
If you do not want to find out yourself or you are not too sure what questions to ask, let us do it for you. When the goal posts have changed, perhaps it's time to understand more about what is happening to your investments.
posted by Murray Round Wealth Management @ 13:11,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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