Unlike the other cost-cutting initiatives, which deal primarily with search-related fees, Jason MacQueen is proposing a complete revamp of manager/investor fee model.
The managing director of R-Squared Risk Management Ltd., Letchworth Garden City, England, has proposed a new investment manager business model in which institutional investors would be limited partners, providing bond-like capital in return for a guaranteed return premium over a benchmark. Fees to the investor would be zero.
Mr. MacQueen said managers should think entrepreneurially about their “alpha manufacturing process,” or skill, while investors should be wary of managers who don't take equity risk alongside their clients. Although managers will offer many reasons why they don't do this, “the bottom line is, they don't believe in what they're doing,” Mr. MacQueen said.
He said his model would provide investors a guaranteed outperformance over an agreed benchmark, with no management fees, while managers would get a greater share in — or take greater responsibility for — the fruits of their investing skills.
“The risk is the same as an index fund, the fees are less and the (relative) performance is guaranteed,” Mr. MacQueen said. He has had some interest in the model from U.S. pension funds, but noted that a similar proposal was raised more than a decade ago “but died for a lack of interest from managers.”
This article originally appeared in the September 3, 2012 print issue as, "Sea change in manager/investor model proposed".