Fund incentive fees: Aligning interests

'Tricky issue of fund incentive fees'

Any period of market turmoil tends to revive the ‘active versus passive’ debate in some guise or another. And with it comes more press and investor scrutiny of fund manager incentive fees.

One side of the debate around fund incentive fees is that fixed, asset-based management fees encourage asset-gathering, whereas a performance-based fee promotes efforts into research and analysis to achieve a performance target. Wherever your opinion may lie on this, a key point of debate around performance-based fees charged by fund managers is whether they align investors' and manager interests, or in fact create a conflict of interest. Conceptually, the manager should earn - or not earn - an incentive fee, depending on whether or not alpha is generated for investors. Which FTSE ...