Van Eyk criticises specialist managers
By Vishal Teckchandani
Friday 9 July 2010
Van Eyk Research has criticised fund managers offering Australian equities specialist strategies for charging excessive fees.
Most managers charged performance fees of 15-20 per cent as soon as they beat cash, which is unreasonable as specialist strategies are not risk free, the firm's senior investment analyst Chris Bigg said.
Specialist strategies include variable beta, equity multi-strategy and equity market neutral investment styles.
"Given specialist strategies are not risk free, we believe a performance fee hurdle of cash plus 2 per cent after fees is appropriate for market neutral and equity multi-strategy offerings," he said.
"We also believe a performance fee hurdle of cash plus 3 per cent after fees is appropriate for variable beta managers, considering a proportion of their performance fees will be derived from beta and not alpha."
Variable beta funds can increase or decrease their allocation to cash and short-selling in uncertain markets. They are generally more flexible than 130/30 strategies, Bigg said.
His comments follow recent research produced by the firm, which said financial planners are better off putting risk-averse clients' money in specialist strategies in the current economic climate.
The report covered 12 Australian equities specialist strategies, with variable beta manager WaveStone Capital and equity multi-strategy product Macquarie Special Events obtaining van Eyk's highest rating.
In the three years to December 2009, the group of managers showed much less volatility than the S&P/ASX 300, yet on average "significantly outperformed" it, Bigg said.
"The specialist universe remains significantly underdeveloped by global standards," he said.
"Given some of these strategies are more appropriate for conservative, risk-averse investor types, van Eyk expects them to gain popularity in the medium term.
"Van Eyk encourages more Australian long-only equity managers to establish variable beta offerings - but with fee structures more reasonable than those currently charged by specialist managers."
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