Hargreaves Lansdown chief executive Peter Hargreaves has slammed the use of performance fees and has called for advisers to boycott funds which use them, except in exceptional circumstances.
Writing in this week’s Money Marketing, Hargreaves, who steps down from his chief executive role later this year, says performance fees are only designed to benefit the manager and less than a dozen managers in the UK warrant them.
He says if fund managers benefit when they perform well, they should also be penalised if they perform badly. He argues that those fund managers with performance fees on their funds should have an additional charge deducted from them if they fail to perform.
He says: “Surely it is only equitable for a performance fee to exist if the benefits to the fund manager on the upside equally disadvantage him on the downside. He should put the money in.”
Hargreaves says that there are two types of performance fee which he feels are unfair on the investor.
The first is the use of a hurdle rate which he says is easy to beat, such as Libor.
Hargreaves says the second is using hurdles that only apply over a short-term per-iod, such as three months, which he says are particularly easy to beat.
Hargreaves Lansdown currently has 14 funds with a performance fee within its Wealth 150. However, it says that in the future it will be far stricter on adding and retaining those funds on the list.
Schroders head of UK intermediary business Robin Stoakley says: “Performance fees offer a good incentive to managers to add value.
“In my opinion, there is nothing wrong with them as long as they have a sensible and realistic calculation and a relevant benchmark.”