Investment Trust Insider: How the RDR could hinder not help trusts

Performance fee argument

It did seem for some time that this viewpoint had been accepted by most investors in closed-end funds but then, with the advent of RDR, the debate started to swing back the other way (seemingly on the grounds that investors who were used to open-ended funds would not understand them, which may be doing them a disservice).

I was shocked to see Standard Life Smaller Companies abandoning its performance fee last year, and even more so to see the Association of Investment Companies endorsing that decision, saying: ‘We welcome the move to simplify fees by removing the performance fee element, as this makes it easier for intermediaries to compare investment trusts with Oeics.’

Without rehashing the argument in favour of performance fees, I would reiterate my conclusion from the November 2011 article: ‘High fees matter in a low return world but the lowest charges in the world are not much help if a fund manager does not perform. I think performance fees should be the norm rather than the exception. It is just a matter of getting the structure right’.

James Carthew is director of Sapient Research