Manager Research

We are in the process of reviewing the PSG range of funds.  With the move to clean classes across platforms there have been a number of questions relating to our view on the fee structure which applies to future flows within the PSG Flexible Fund.  PSG charges a fixed base fee of 0.75% per year, with an additional charge of 7% on any positive return.  While this may seem at face value to be a reasonable performance fee share, it is notable that the baseline above which the fee is charged is zero.  The alternative would be a higher sharing rate applied to excess outperformance, which is typical of most performance fee structures.  The fee does not exhibit symmetry, where clients would receive some form of fee claw-back if target performance levels are not met.  So while the objective is to outperform inflation by 6% per year, there is no penalty if this target is not met, however there is upside in the fee if they deliver a return greater than zero.  By way of illustration, should they deliver a cash like return, a fee of around 1.35% applies; should they deliver on their baseline objective (CPI+6) the fee is 1.83%, and escalates beyond that with no cap.  Also note this is all subject to a high-water mark principle which means that the fee will be accrued provided the NAV price of the fund is reaching new high levels.

We believe this fee structure is significantly skewed in favour of the manager to the detriment of the client.  While PSG believes that the performance fee incentive allows them to manage a smaller asset base thereby protecting future returns, we believe that by and large any additional excess return delivered is offset by this fee.  In summary, we believe the fee to be outside of the bounds of reasonability we would apply to a fund of this nature, and have communicated as such to the manager.  This will be considered within the scope of our fund rating review to be completed and communicated shortly.