The campaign by asset consultants Frontier and JANA for more standardisation of fees, including performance fees, gained support yesterday from a visiting US-based global manager.
Cassandra Hardman (pictured), partner and international portfolio manager for high-conviction manager Johnston Asset Management, said: “One would have to ask ‘why a manager who provides active management would not be happy to offer performance-based fees as an alternative.”
JANA and Frontier jointly issued a set of principles late last month to guide super funds in their consideration of manager fees. The principles included a cap of 33 per cent fees on active alpha, and an average of 25 per cent, with generally lower base fees.
Frontier has been proposing for about 18 months that managers consider offering a base fee which reflects their own cost base, rather than a percentage of assets, plus a performance fee.
Hardman said while her firm was sympathetic to the idea, this might be unwieldy in some circumstances: “It sounds good to be able to pass on all your costs but does this mean that the plan sponsors would want to scrutinise the manager’s business? What happens if there’s a high retail component to the business or if the manager goes flat out with its marketing?”
She said that Johnston AM, which has a mandate benchmarked to the MSCI All Country Index from Perpetual Investments, always offered a performance fee option but most pension funds still preferred a traditional basis points fee.
“As a business we would have been much better off with performance fees over almost every period in the last 17 years,” she said. Johnston has been managing EAFE (global ex-US) funds since 1993 and global funds since 2005. The global fund has had an average excess return of 6.75 per cent before fees since inception.
According to John Schaffer, whose firm Catalyst Advisors represents Johnston in Australia, the downward pressure on fees and charges, including the Cooper Inquiry’s recommendation for a low-cost default under My Super, suited Johnston’s business model.
“Johnston is prepared to manage money for a very low base plus a performance fee,” he said.
“Personally, I think the principles outlined by JANA and Frontier should be welcomed by the industry.”