Cost competition is going the wrong way

The arrival of really expensive funds in the Ucits space, notably those being launched by hedge fund managers, makes the funds run by traditional long-only managers look quite reasonable.

In today’s FTfm, I write about the York Event-Driven Ucits Fund, which boasts fees for retail investors of 2.5 per cent a year on assets and 15 per cent on returns (above a high water mark). The asset-based fee for institutional investors drops down to 1.5 per cent, but the performance fee remains.

Nick Wells at Artemis Fund Managers got in touch to say Artemis had decided against charging a performance fee when it launched its Strategic Assets fund in May. Managed by William Littlewood, the fund uses the the full range of Ucits III tools and charges 1.5 per cent a year (1.68 per cent total expense ratio).

The reason for deciding against a performance fee was straightforward, says Mr Wells. “If the fund worked well and did what the objectives suggested we would attract investors and investment. A flat fee would therefore provide adequate compensation for the manager.” With £247m under management so far, Mr Wells is confident history will prove Artemis right.

Of course, Mr Littlewood may be less demanding than your average hedge fund manager.

It seems he is less demanding than French fund managers too. As Sophia Grene discovered, the French routinely charge investors more than 2 per cent a year. Perhaps distributors in France want a bigger cut than those in the UK and investors are even less interested in or aware of the costs of investing than their UK counterparts.

Given that the recent paper by the Royal Society of Arts on pension saving reckoned even 1.5 per cent a year was much too high, it seems the fund management industry is not really focused on helping investors build a decent retirement pot. Instead, it looks from the outside as if they are laughing all the way to the bank!

About the blog

FTfm is no longer updated but it remains open as an archive.

FTfm's specialist writing team offer their insights into the global fund management industry.

About the authors

Pauline Skypala has been editor of FTfm for four years having previously been deputy personal finance editor. She joined the FT in 1999 and has been writing on savings and investment issues throughout her career.

Steve Johnson, FTfm deputy editor, has been a journalist for 17 years, 10 of which have been with the FT.

Sophia Grene, reporter on FTfm, has been a financial journalist in print and online for 12 years.

Ruth Sullivan has worked as a financial/business journalist and foreign correspondent and for the past 10 years has been at the FT.