Gottex allows investors to claw back fees
A Swiss fund of hedge funds manager is giving its clients the right to claw back part of the performance fees they have paid, in a move that mirrors the Group of 20 nations’ proposals on bonuses for bankers.
Investors in the flagship fund of Gottex Fund Management will still pay 10% of any fresh profits from the fund each year. But they will be able to recoup some of that if the $4.8bn (€3.3bn) strategy falls in subsequent years. Gottex has already cut the fixed fee on the fund from 1% to 0.75%.
Max Gottschalk, head of European business for the $8.1bn manager, said escrowing variable charges matched investors’ hopes for long-term performance, with managers wanting to do well over years, too.
He said: “You need the manager to be rewarded for consistent, long-term performance.”
Hermes BPK Partners is also introducing a vesting model, holding two thirds of any incentive fee its products earn each year in an account that releases the cash to the manager over the following two years, subject to the manager still performing.
Matteo Perruccio, Hermes’ chief executive, said targeting long-term returns “helped discourage managers trying to shoot the lights out in any one year.”
However, Nicola Ralston, co-founder of investment consultants PiRho Investment Consulting, advocated discouraging risky behaviour by capping the amount managers could earn through incentive fees, instead.
She noted this already happened at some long-only managers.
When funds beat expectations, she said, investors would benefit, while their managers would have made as much as the fee cap allowed them.
She said: “The problem [now] is that managers hit the jackpot when they make a lot of money, but they don’t pay it back when they lose money, so there is still an incentive to take risks.”
Ralston said hedge fund fee structures risked becoming too complex, confusing investors.
She said: “Each investor can end up with a different fee calculation, and when you add in high water marks, it all adds extra layers of complexity.”
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