Harvest Lane fund realigns fee structure

05-Dec-2016

By Sarah Kendell

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Boutique investment manager Harvest Lane Asset Management has launched an offering for retail investors who can benefit from active management, with fees charged solely on performance, rather than a percentage of assets.

The Harvest Lane fund, which uses a merger arbitrage strategy to select stocks experiencing volatility as a result of potential takeovers, has been available to institutional investors for three years, returning an annualised 11.67 per cent.

Speaking about the launch to retail investors, Harvest Lane chief investment officer and managing director Luke Cummings said the fund aimed to better align investor and manager interests.

“From our perspective, a lot of funds management companies don’t have a great underlying interest with the investor,” Cummings said.

“In the event investors lose money they are paying fees to the manager, and in the event they make money they pay even more fees to the manager.”

He added that there were also “huge outflows from active funds” from people moving to exchange traded funds (ETFs) “because performance hasn’t been great and the fees that investors are paying eat into those returns even further”.

“It’s our view that investors don’t mind paying fees if they are getting the results to go along with that.”

Cummings said that overinflated fees were a particular problem among the larger listed asset managers, who often used management charges as a way to generate excess profits for shareholders rather than to cover genuine business expenses.

“If you are a small fund and you don’t have economies of scale, you have expenses you incur in that business: everything from administration to custodians, and even paying staff salaries and office costs are all reasonable expenses,” he said.

“The problem is as you get those economies of scale, you have well and truly covered your costs at that point – from a business perspective your management fee is going straight to your bottom line, but that’s also affecting your performance, so business is getting a better deal and investors are getting a worse deal.”

A lower fee model was particularly unusual among funds that used a merger arbitrage strategy, as these were usually restricted to institutional and high net worth investors, Cummings said.

“From a retail perspective the opportunity to access these types of strategies is quite restricted, even though retail investors are actually best suited to this sort of return profile,” he said.

“We try to take the volatility out that comes with traditional market-based strategies, so it’s a low stress alternative for people who need equity market-like returns but without the volatility.”

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