EDHEC welcomes Fidelity's announcement on the introduction of performance-based fees but considers that it is possible to do better
(Thomson Reuters ONE) -
Fidelity International's announcement on October 3 that it was implementing a
fee scheme that aims to adapt fees to performance is a very good response to
asset owners' and consultants' excessive focus on price reductions alone.
EDHEC welcomes the fact that by linking fees to performance, Fidelity, like
Allianz Global Investors and Alliance Bernstein before them, allow investors to
question other aspects of the investment management offering than the price
aspect alone, especially the robustness of performance, and in the same way the
quality of the investment management offerings.
Exclusively focusing on price favours a genuine phenomenon of adverse selection,
which leads to a loss of interest in the quality of products, and therefore
incites operators to neglect quality and reduce their research and risk control
fees in order to win the price war. This phenomenon of adverse selection, which
has given rise to extensive academic research, notably that of George Akerlof,
who was awarded the Nobel Prize in 2001 for his research, is particularly
present in the new forms of passive investment, especially smart beta, where the
confusion between simulated track record and live track record maintained by the
actors involved prevents investors from easily distinguishing between good and
bad offerings.
Reacting to Fidelity International's announcement, Professor Noël Amenc,
Associate Dean for Business Development with EDHEC Business School and CEO of
ERI Scientific Beta, indicates that, "In the coming weeks ERI Scientific Beta
will update its variable fee scheme, which allows investors to pay zero fees if
the Scientific Beta multi-factor multi-strategy index chosen does not outperform
the reference index over the year. We think that in all logic Fidelity should
also reduce their fees to zero if they underperform the benchmark, which is not
the case in their fulcrum fees proposal."
ERI Scientific Beta's variable scheme, which was launched in May 2016, is part
of its response to the excessive attention that investors pay to fees, to the
detriment of an assessment of the quality of performance and its out-of-sample
robustness. Noël Amenc adds, "We are currently witnessing a highly worrying
phenomenon of in-sample optimisation of the performance and factor intensity of
smart beta indices to the detriment of their robustness, with a fairly cynical
strategy of "sell and forget." Even though smart beta indices sometimes have
live track records of more than 10 years, index promoters prefer to calculate
future expected returns rather than showing their historical performance. By
linking fees to performance, investors have the possibility of putting pressure
on the quality of the products that are offered to them."
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As part of its policy of transferring know-how to the industry, EDHEC-Risk
Institute has set up ERI Scientific Beta. ERI Scientific Beta is an original
initiative which aims to favour the adoption of the latest advances in smart
beta design and implementation by the whole investment industry. Its academic
origin provides the foundation for its strategy: offer, in the best economic
conditions possible, the smart beta solutions that are most proven
scientifically with full transparency of both the methods and the associated
risks.
ERI Scientific Beta, 1 George Street, #15-02, Singapore 049145. For further
information, please contact: contact(at)scientificbeta.com, Web:
www.scientificbeta.com.
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Press_release_Fidelity_performance_fees:
http://hugin.info/157174/R/2139788/819197.pdf
This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: EDHEC-Risk Institute via GlobeNewswire
Unternehmensinformation / Kurzprofil:
Datum: 05.10.2017 - 15:40 Uhr
Sprache: Deutsch
News-ID 562632
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Kategorie:
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