Market Research
Europe's Funds Industry Moves To Lower Performance Fees, Says Fitz Partners

Independent fund research company Fitz Partners analyses thousands of different performance fee structures on its European funds databases.
European asset managers are taking steps to lower performance
fees, new data shows, at a time when Europe's funds industry is
already weighing up how to best cover research costs once a new
directive is implemented next January.
As management fees are largely used to remunerate asset managers,
it might be assumed that a performance fee would be charged, in
effect reducing the level of fixed management fees.
However, this is usually not the case, according to fund research
house Fitz
Partners, which has found it “challenging to find substantial
differences” between levels of management fees levied on funds
carrying a performance fee and those that do not.
But this “historical, expensive model” may be changing, Fitz
Partners has said.
When comparing “twin” share classes, which are identical except
for their differing management and performance fees, Fitz
Partners has found that their management fees vary by 26 basis
points on average. This represents a 24 per cent drop in the
average management fee of the share class also charging a
performance fee. In a sample of 43 products, ongoing charges
(OCFs) including performance fees for share classes that do not
levy a performance fee were cheaper to the tune of 19 basis
points.
“It is interesting to note that, when you have the choice between
“twin” share classes, you might actually get a discount when
choosing to invest into the share class carrying a performance
fee,” Hugues Gillibert, chief executive of Fitz Partners, said.
“We were glad to see a significant reduction in management fees
to compensate for the presence of a performance fee, but we did
not expect this discount to remain after adding the cost of the
performance fee to the funds OCFs.”
Fitz Partners' findings come as the European asset management
sector is readying itself to navigate a fresh regulatory
landscape carved out by the second iteration of the European
Union's Markets in Financial Instruments Directive, or MiFID II. The wide-reaching
directive will transform transparency and reporting standards
once it takes effect in January 2018, and will for the first time
require money managers to “unbundle” how they pay for investment
research, separating the costs from trading fees.
When considering all share classes, Fitz Partners estimates that
management fees remain the same, regardless of whether
performance fees are levied or not. But administration fees for
funds carrying a performance fee are higher by an average of
eight basis points, the firm notes.