Graham Duce, the co-head of multi-manger funds at Aberdeen Asset Management, has defended performance fees.
The multi-manager says that provided the fees are levied on outperformance of a genuinely challenging benchmark and come with a high watermark, they can be justified.
He says: “It is a contentious issue for us at the moment but we do not have a blanket policy. We will look at the individual fund and work out how the performance fee works.”
Peter Hargreaves, the chief executive of Hargreaves Lansdown, sparked an industry debate when he commented in Money Marketing recently that performance fees “only benefit the fund management groups”.
Duce says he favours the Findlay Park American Smaller Companies fund, which charges a 1% annual management charge and a 15% fee on outperformance of the Russell 2000 index above a high watermark. (article continues below)
He says: “In essence, this has been one of the most consistent alpha generators of the last 10 years. We do not mind paying out where there is consistent alpha.”
But Duce says he will not go so far as to buy so-called “two and 20” funds that have a 2% annual charge and 20% performance fees.
A high watermark ensures that if a fund underperforms, it cannot charge a performance fee on the gains delivered while it makes up that underperformance.