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Mercer says managers should pay to run clients’ money

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Kaboom 8 maart 2018 10:55

Tijd vnder verdienmodel belegging fondsen...!?

www.ft.com/content/05b4f042-17e4-11e8...

Mercer says managers should pay to run clients’ money

Influential consultancy urges rebalance of investor-fee relationship to restore trust

Chris Flood

March 3, 2018

Asset managers should pay investors to run their portfolios and provide performance guarantees instead of earning fees regardless of the returns delivered to their clients, according to Mercer, the consultancy owned by Marsh & McLennan. The proposal by one of the world’s most influential providers of advice to pension schemes would rebalance a system that growing numbers of investors and regulators believe prioritises profits for asset managers over their clients’ interests.Mercer said that a “new bargain” was required to restore trust among savers in the investment industry. Under Mercer’s proposal, active fund managers would retain any additional gains they made from stockpicking only after they had delivered a guaranteed return plus a fixed annual fee that had been agreed with clients.But any shortfall in performance would have to be paid by active managers out of their own pockets to ensure that they hold real “skin in the game” beside their clients’ money. “If asset managers really believe that they can generate alpha [market beating returns], this new approach should provide them with a strong incentive to reorganise their business models,” said Divyesh Hindocha, a partner with Mercer. Mercer’s proposal is a radical contribution to the mounting debate over investment fees and the wider role of asset managers in society.“Asset managers can help restore trust in the savings industry by making themselves ‘vulnerable’ to losses while having the prize that they can keep the majority of the excess returns which they generate,” said Mr Hindocha.He added that Mercer’s plan would impose new disciplines on money managers by encouraging them to observe capacity constraints on their investment strategies and removing the incentive to chase asset growth to generate revenues. It would also encourage asset managers to work more effectively with companies to improve corporate governance standards and to address business risks. An industry observer who asked not to be named said hedge fund managers would “jump at the chance” if offered Mercer’s terms by a pension scheme.Rob Bauer, a finance professor at Maastricht University, said Mercer’s proposal was “a nice idea but difficult to implement” in practice. “Asset managers have very small balance sheets relative to the size of their funds and would be unable to absorb the losses caused by underperformance on even a modest-sized portfolio. So who would underwrite these arrangements?” said Mr Bauer. He added that it was “far easier” to circumvent the problems of active management by using low-cost index funds. Inigo Fraser-Jenkins, an analyst at Bernstein, the brokerage, said fees should reward skill and be performance based. “The way to achieve this would be to set a fee structure that rewards an asset manager for their contribution to the outcome [delivered to the end investor]”, said Mr Fraser-Jenkins. Lars Dijkstra, chief investment officer of Kempen, the Dutch asset manager, said it was encouraging to see challenges to existing fee arrangements. “We question whether traditional fee structures reward a long-term focus by asset managers, said Mr Dijkstra. Kempen is examining whether alternative approaches, such as a “discount for longevity” where fees decline over the lifetime of a partnership, could strengthen the relationship between asset manager and client and help promote more long-term investing. Mr Dijkstra added it would only be possible to see if Mercer’s proposals could work if an investor and asset manager agree terms in a binding contract.FCLT Global, a US think-tank, hosted an event in New York last week to discuss whether mandate terms help to meet the long term objectives of large institutional investors or if they concentrate undue attention on short-term results. Sarah Williamson, chief executive of FCLT, said it was critical for asset managers and investors to each want the other to succeed. “Shaping mandates with provisions specifically oriented towards long-term goals can help build lasting partnerships and improve performance if designed properly,” she said. Debate over the size and structure of investment fees is intensifying worldwide. Abigail Johnson, chief executive of Fidelity International, said in October that fees charged by asset managers require a “fundamental rethink” and challenged rival fund houses to treat investors more fairly. Ms Johnson said so-called fulcrum fees should be used more widely. Fulcrum fees, which rise when the fund outperforms and decline during periods of underperformance, have existed since the 1970s, but they remain uncommon in the US and virtually unheard of in Europe.In Japan, the $1.4tn Government Pension Investment Fund has launched an investigation into the pay and bonuses that its external portfolio managers receive as the world’s largest retirement saving scheme attempts to understand the link between remuneration arrangements and performance.

[verwijderd] 8 maart 2018 14:57

www.bol.com/nl/f/skin-in-the-game/920...

Bestselling author of BLACK SWAN is back with a new book about why we should only trust those who have something to lose. For a society to function properly, those who benefit should also risk something and those who risk something should benefit. Full of philosophical tales and practical stories, it offers a key rule to live by: do not do to others what you don't want them to do to you.

twitter.com/nntaleb

houdt niet van bull shit.

skin in the game zou zeker ook voor de publieke sector en politiek moeten gelden om maar niet over alle zakkenvullers in brussel te praten.

[verwijderd] 8 maart 2018 15:02

ook een geweldig model voor alle consultants economen en andere bull shit voorspellers,die verdienen door zich leuk te marketingen maar niet door resultaat.

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