We believe that reducing our headline charge for asset management coupled with incorporating a new variable element into our management fee best supports our ability to deliver strong, fundamental research-based active management, while firmly aligning our clients’ interests.
Our new charging model is a solid response to the criticisms that have been levelled at the active fund management industry, in particular the lack of transparency in charges, lack of innovation in pricing and that firms are not always believed to work in the best interests of their clients.
We believe our solution will offer demonstrable value to clients, strengthen alignment to our clients’ interests and provide an additional buffer in cases where we do not deliver outperformance.
Many “performance fees” are asymmetric in their application, with the manager participating only in the upside. Our variable management fee is a consciously symmetric two-way sharing of risk and return. Where we deliver outperformance we will share in the upside. Where we deliver only benchmark performance or less, our clients will pay less. We will only charge a full fee for active management when our clients receive the full financial benefits of active management over the long term.
Clients will have a choice whether to take advantage of the new variable management fee arrangements, but we fundamentally believe this structure will be attractive to clients across our active equity capabilities, for both wholesale and institutional clients, aligning our interests with theirs.
Paras Anand is the chief investment officer for equities, Europe at Fidelity International