For instance, Fidelity’s launch of no-fee index funds in 2018 has, along with moves by other passive asset managers to reduce or eliminate fees, caused many institutional investors to seek fee reductions from their active managers.Īnother sign of this trend comes from the commissions front, where Charles Schwab has eliminated commissions entirely for some customers. As more money moves to managers and vehicles using anon-active approaches, pressure is exerted on fees charged by active managers. The shift towards an increase in the use of performance fees is occurring within an overall trend of decreasing fees for asset managers, largely due to the popularity of passive investing strategies. To aid you in aligning your performance fee billing policies with industry best practices, we’ve outlined 3 best practices tips gleaned from our experience with these fees. While their usage may be increasing, there are pitfalls that make it imperative to review and implement best practices before putting such fees into effect. In this article, we discuss trends in the use of performance fees in the asset management industry. Additionally, some billing systems have difficulty handling these complex calculations. Because calculating performance fees can be more complex than asset-based billing, staying proactive is necessary to ensure such fees are correctly computed.
As with Hamilton’s bared sword, the debate over performance fees has threatened to disrupt the asset management industry.ĭespite the risks inherent in current market conditions, there has been a growing expansion in the use of performance fees. Performance fees for asset managers can be seen as a double-edged sword – driving revenue when markets are rising but slicing away profits in flat or falling markets. Alexander Hamilton, First US Treasury Secretary “When the sword is once drawn, the passions of men observe no bounds of moderation.” Trends in the use of performance fees in the asset management industry 3 Tips for Designing Performance Fees as an Asset Manager
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