Paying fund managers a fee only if they beat the benchmark? The idea tested by Allianz Global Investors in the U.S. is the latest in a bid to counter the success story of index trackers.
Allianz Global Investors, the fund manager of Germany’s Allianz insurance, launched three funds in the U.S., charging only a minimal fee. Investors will have to pay for the service only if the asset manager beats the benchmark S&P 500 index, according to a report by Germany’s «Handelsblatt» (in German behind paywall). If the manager succeeds, the company takes a fifth of the profit he generated.
The initiative comes as so-called exchange traded funds (ETFs) are sweeping the market with their low-fee business model, said Andreas Utermann, CEO of Allianz Global Investors, adding that the solution presented was the right one to counter ETFs in the bread-and-butter business.
A Way to Boost Competition
In Switzerland, active fund managers also are struggling to maintain market share and are looking for new ways to convince customers that their advice is well worth the fees charged. The business model presented by Allianz may be option for Swiss asset managers too, because that way customers know exactly what they are paying for and why – making fees transparent.
Also, if asset managers only receive their premiums if they manage to beat the benchmark, it will boost competition and, over the medium term, improve the quality of service.
Way to Go
«In the long run, this goes in the right direction, because it is the fairest way to manage client assets,» said Levon Babalyan, founder of Ambérd Capital, an independent Swiss wealth manager, in an interview with finews.com. Ambérd Capital also takes performance-related fees and only if clients get a positive return on investment.
The performance-fee-model may not be implemented soon as only about one in ten active fund managers beats the benchmark over a period of several years. Babalyan says that banks won’t introduce performance-related fees voluntarily as long as they earn enough money under the current system.
Still, Swiss asset management has to find ways to beef up its reputation. The financial market is expensive and has lost some of its allure when the government decided to give up on the business with untaxed assets from abroad.
