“I would much rather a manager did not pay overs for brokerage so it could fund other unrelated projects, especially in a way that artificially reduces their headline fees,” Block said. “A better way is for the manager to charge more for its services and pay less brokerage … crosssubsidisation is never good. What if the research purchased by the manager from one strategy and its trades helps clients other than those that did the transactions – that is, clients in a different strategy offered by the manager?” Block wondered how widespread such manager-broker soft dollar arrangements remained, whether secret or disclosed.
The senior manager of investments at AustralianSuper, Peter Curtis, said he “hoped” such arrangements would be disclosed, as is required by IFSA membership for example, and he observed that his fund’s own brokerage spend had been flat for several years. Meanwhile, Sunsuper CIO David Hartley questioned whether the focus on headline fees was creating a false economy for members.
The industry’s current mentality, he said, would be to look at a hedge fund manager taking 25 per cent of profits as unacceptable, yet not question an investment in Macquarie Bank, which explicitly states that 50 per cent of its profit pool will be distributed as salaries and bonuses to staff. “The economics for members is actually better with the ‘high’ hedge fund fee,” he said. “Looking through every layer of fees on every investment is impossible and, in the end, not necessary. Tell me what fee my fiduciary agent is taking out to provide services such as administration and investment management, and I can then make a judgement as to whether I am getting a good deal,” he concluded.