Eclectica is to introduce a 20% performance fee on its Absolute Macro fund and wants the flexibility to reset the high watermark to prevent management being ‘unreasonably penalised’ should the fund’s value fall heavily.
As part of a wider overhaul of the fund’s charging structure, the firm will reduce the annual management fee from 1.75% to 1.5% and waive the initial charge of 5%.
All of the changes to the fund, which is managed by Hugh Hendry (pictured), are subject to shareholder approval and, if passed, will become effective from February 1 next year.
In a letter to the fund’s investors seen by Wealth Manager, Eclectica pointed out that Absolute Macro’s original prospectus allowed for a 15% performance fee, but this has never been taken.
Eclectica’s rationale for the introduction of the higher performance fee is that the fund ‘has a global macro strategy and seeks to generate absolute positive returns. It has therefore been decided that the most appropriate method for calculating a performance fee for a global macro fund is without a benchmark but with a high watermark (HWM).'
The letter states that the payment of the performance fee will not be dependent on the fund outperforming any other performance benchmark except the HWM. The group also admits that if the performance fee is triggered, ‘the combination of a performance fee with a lower annual management charge will mean that the total fees payable by a share class may at times be greater than those currently paid by way of an annual management charge alone.’
The letter maintains that the use of the HWM will be a safeguard against investors being charged a performance fee until any previous losses are recovered. However, this is subject to the firm’s option of resetting the HWM, should the fund’s net asset value experience losses of over 30% during the 12-month calculation period.
Resetting the HWM will need approval by both the authorised corporate director (ACD), Capita, and the company’s depositary. If the HWM is reset, investors will be notified 30 days in advance, giving them the option to redeem their shares.
Eclectica said: ‘In order to prevent the investment manager from being unreasonably penalised in the event of a sharp fall in the markets, the investment manager will have the option to request that the ACD considers resetting the HWM.
‘The option to request the reset of the HWM will be available to the investment manager at the end of a calculation period, providing the NAV has declined by more than 30% during that calculation period.’
Eclectica added that the Financial Conduct Authority (FCA) has given written confirmation that the changes will not affect the ongoing authorisation of the fund.
The Eclectica Absolute Macro fund has returned 1.96% over three years compared to the Citywire Global Macro sector average of 11.31%.