There’s a lot of loose chat about downward pressure on fees, but those who say that it will only affect the mediocre may be right. One fund manager at least is seeing opportunities for nudging fees upwards, on one new product.
Ashmore Group is offering to take distressed assets off your hands in return for fat management and performance fees. The assets in question could be anything in emerging markets that is suffering from illiquidity. Investors, such as banks or pension funds, may not want them on their books currently, as mark to market valuations are unflattering, but nor do they want to sell them in such an unwelcoming environment.
Now they can put them into Ashmore’s new fund, at mutually agreed valuations, and hope to get some return from them when markets return to something resembling normality.
The fund has been seeded by UBS, which has stuffed about $100m worth of emerging market securities into it (at current values). The Swiss bank is also helping out with the marketing of the product.
“The recovery value [of these assets] is expected on average to be fairly healthy, and we can help manage them better than if they just get left sitting there,” says Jerome Booth, head of research at Ashmore (pictured). He is confident both that the returns will be satisfactory and that enough investors will want to get rid of their distressed assets to make it worthwhile.
Ashmore hopes to get something from them in return. An annual management fee of 2 per cent and a performance fee of 25 per cent once they reach a return above 10 per cent might have sounded normal in the good times, but in the bad times it seems very demanding.
Two considerations prevent outrage on the investors’ behalf. First, the assets might well be worth significantly more to the investors under these circumstances than if they were sold now. Second, the investors will largely be banks. Do we really mind if they have to pay through the nose?