LONDON More U.K. managers are charging performance fees, but that doesnt necessarily mean their performance has improved, according to a new study by consulting firm Grant Thornton U.K.
About half of U.K. money managers not including hedge funds, private equity and real estate managers charged performance fees in some form as of August 2007, up from 35% in 2004. However, firms that charged performance fees beat their benchmarks 53% of the time on average vs. 59% for those without such fees.
Performance fees can amount to quite a lot of money, Grant Thornton consultant Hugh Aldous said in a news release accompanying the study. They deserve more attention from boards, and they should periodically be the topic for boardroom analysis and review with independent professional advisers who understand the benefits, issues and different types of construction fees.
Indeed, virtually all our interviewees were of the view that the principal effect of performance fees has been to enhance the return to the management company. Perhaps that explains why the increase in performance fees has mainly been driven by management companies, not boards, according to the study.
Grant Thornton studied performance data for September 2006 through August 2007 from 240 firms that were members of the Association of Investment Companies, a U.K. trade organization for closed-end investment companies.