GLOBAL - A new fee structure for institutional asset owners and their managers has been launched by Swiss-based Sustainable Asset Management, in a bid to align the long-term interests of the two parties.
The fee model for institutional mandates with a long-term investment horizon combines a fixed fee to cover the setting-up and running of the mandate with a performance-based fee.
The performance-based fee will be agreed with investors and will relate to the investor's long-term investment objectives.
Depending on the nature of the mandate, the practice - which is offered exclusively to segregated accounts - calls for a mutual agreement on the investment horizon to reflect the mandate's long-term orientation and allows the fund manager to implement its investment strategy and earn a performance fee over the market cycle.
The new fee model is recognition from SAM that asset owners have become increasingly unwilling to pay uncapped basis points fees on the assets under management held.
The traditional fee model is seen to overcompensate asset managers in rising markets, according to officials, but implies no sharing of economies of scale with the client and bears no relation to the value added by the manager when reaching the long-term investment objectives of the client.
By addressing these flaws, said Sander van Eijkern, chief executive at SAM, the new fee scheme aims to transform the relationship between asset manager and asset owner to a value-oriented long-term partnership.
"Sustainability is about more than just investment strategies," he says. "And the next subject, which needs to become sustainable, is the relationship between asset manager and asset owner."
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