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Lipper backs performance clawback

Lipper has proposed that investment companies using performance fees should include a clawback feature to reduce charges if the manager fails to achieve targeted returns.

Research by the firm suggests such a move would help to ensure a fund’s charging structure is more than just a oneway bet for the company.

Overall, Lipper found that two-thirds of the 81 openended funds in the UK that use performance fees can levy the charge for beating a falling index. This means the fund company can take fees even if investors are losing money.

Lipper FMI head of consulting Ed Moisson says only a minority of companies using performance fees levy less than the standard 1.5 per cent annual management charge.

He says: “The vast majority charge 1.5 per cent or more, suggesting there is, in principle, no financial downside for companies implementing a performance fee structure.”

The research coincides with a rising debate on performance fees, with Hargreaves Lansdown co-founder Peter Hargreaves saying that fewer than a dozen managers in the UK warrant performance fees.

Lipper’s research shows the number of funds charging performance fees increased from 34 at the end of 2007 to 81 but this still represents less than 5 per cent of the industry’s total number of funds.

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