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Article
Publication date: 1 October 2006

F. Scott Thomas and John C. Jaye

The article seeks to outline the requirements under the Investment Company Act of 1940 (the “Investment Company Act”), the Investment Advisers Act of 1940 (the “Advisers Act”) and…

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Abstract

Purpose

The article seeks to outline the requirements under the Investment Company Act of 1940 (the “Investment Company Act”), the Investment Advisers Act of 1940 (the “Advisers Act”) and related US Securities and Exchange Commission (the “SEC”) rules and interpretive guidance for structuring performance‐based fees for investment advisers and sub‐advisers to registered investment companies (or mutual funds).

Design/methodology/approach

The article discusses the appropriate structure and timing for performance fees and describes in detail how SEC standards for structuring performance fees have evolved over time. The article explains recent SEC enforcement actions against investment advisers for improperly structured performance fees, and notes that the use of performance fees has once again become a focus of SEC scrutiny.

Findings

The article concludes that, despite a common perception that performance fees create an effective incentive to improve fund performance by more closely aligning the interests of the adviser and fund shareholders than traditional fee arrangements, there is minimal empirical evidence proving that the use of performance fees translates into superior fund performance. Investment advisers who charge performance fees to mutual fund clients should consider reevaluating the structure and payment process for the performance fees in light of recent SEC scrutiny and enforcement actions, adviser compliance obligations under Rule 206(4)‐7 of the Advisers Act, and fund compliance obligations under Rule 38a‐1 of the Investment Company Act.

Originality/value

The article provides a concise overview of the regulatory requirements for structuring performance fees charged by mutual fund advisers.

Details

Journal of Investment Compliance, vol. 7 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 21 October 2019

Tom Messmore and Travis L. Jones

Prior research has demonstrated that investment management performance fees have the characteristic of a call option. It is important to examine whether these performance fees are…

Abstract

Purpose

Prior research has demonstrated that investment management performance fees have the characteristic of a call option. It is important to examine whether these performance fees are consistent with traditional fee structures used by investment managers. It is also worth examining whether clients or managers benefit significantly more than the other party under performance fee structures. The paper aims to discuss these issues.

Design/methodology/approach

The authors use Black-Scholes options pricing methodology to examine three cases of performance fee structures. The Absolute Hurdle case examines the fee structure where the manager receives a portion of the return over a pre-defined absolute rate of return. The Benchmark Relative Hurdle case shows a fee structure based on performance in excess of the return of a benchmark portfolio. The Breakeven Relative Hurdle case illustrates the fee structure where there is revenue neutrality with the classic management fees when portfolio performance matches the benchmark.

Findings

The findings of this paper illustrate that a particular performance fee structure can be designed to have the same revenue as a traditional investment management fee structure. Such a structure is equally beneficial to both the investment manager and to the client and should have salutary motivational effects to improve investment results, while simultaneously rewarding the manager for value added at a fair price for both the manager and the investor.

Originality/value

This study is unique in that it examines three cases of performance fees and provides a comparison between performance fee structures and traditional investment management fee structures. The findings will assist investment portfolio managers in better setting management fees they charge clients. In addition, this study help with clients who feel they are being charged excessive management fees by their investment manager.

Details

Managerial Finance, vol. 46 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 5 May 2021

Giacomo Morri, Ugo Perini and Rachele Anconetani

The paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014.

Abstract

Purpose

The paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014.

Design/methodology/approach

Using a sample of 363 funds collected from the Inrev database, the analysis evaluated the impact of fees and other intrinsic characteristics of these funds, such as leverage, size and duration, on the funds’ performance, intending to enhance the understanding underlying their relationship.

Findings

The findings show a negative relationship between the return of the funds and redemption fee, performance fee and management fee. Conversely, marketing fees have a positive effect on performance. When analyzing the investment style, the results reveal inhomogeneous behaviors of leverage on funds’ performance. This variable has a positive impact on the return in core funds, while there is a negative relationship in value-added investments. Finally, the emphasis on the global financial crisis shows that the effects of the independent variables on the performance do not significantly change in different economic cycles.

Practical implications

The practical implication of the research is to understand whether an investor can direct its resources in a fund, leveraging on certain intrinsic characteristics that can be observed a priori.

Originality/value

Even if there is a considerable body of literature on determinants of performance in European non-listed real estate funds, little research has analyzed the role of fees in driving their results. Besides, this paper takes advantage of observations from different investment styles to emphasize the impact of higher or lower risk profiles and from the full economic cycle to understand the effects of the crisis period.

Details

Journal of European Real Estate Research , vol. 14 no. 2
Type: Research Article
ISSN: 1753-9269

Keywords

Book part
Publication date: 1 November 2018

Zhongzhi (Lawrence) He, Martin Kusy, Deepak Singh and Samir Trabelsi

The Canadian mutual fund setting is unique in that two governance mechanisms – corporate and trust – coexist. This study empirically examines the impact of each mechanism on fund…

Abstract

The Canadian mutual fund setting is unique in that two governance mechanisms – corporate and trust – coexist. This study empirically examines the impact of each mechanism on fund fees and performance. We find that corporate class funds charge higher fees but deliver superior fee-adjusted returns than trust funds. We then analyze the impact of various board characteristics on fees and performance for corporate class funds. We find that a board with smaller size, CEO duality, and a higher percentage of independent directors is more likely to charge lower fees. In addition, smaller boards are strongly associated with higher fee-adjusted performance. Our study supports agency theory over stewardship theory and provides valuable guidelines for Canadian investors and regulatory agencies.

Details

International Corporate Governance and Regulation
Type: Book
ISBN: 978-1-78756-536-4

Keywords

Article
Publication date: 1 March 2009

In prior work, GAO found that contractors were paid billions of dollars in award fees regardless of acquisition outcomes. In December 2007, the Office of Management and Budget…

Abstract

In prior work, GAO found that contractors were paid billions of dollars in award fees regardless of acquisition outcomes. In December 2007, the Office of Management and Budget (OMB) issued guidance aimed at improving the use of award fee contracts. GAO was asked to (1) identify agencies’ actions to revise or develop award fee policies and guidance to reflect OMB guidance, (2) assess the consistency of current practices with the new guidance, and (3) determine the extent agencies are collecting, analyzing, and sharing information on award fees. GAO reviewed the Departments of defense (DOD), Energy (DOE), Health and Human Services (HHS), and Homeland Security (DHS) and the National Aeronautics and Space Administration (NASA)-agencies that constituted over 95 percent of the dollars spent on award fee contracts in fiscal year 2008.

Details

Journal of Public Procurement, vol. 9 no. 3/4
Type: Research Article
ISSN: 1535-0118

Article
Publication date: 6 February 2023

G. Edward Gibson, Mounir El Asmar, Abdulrahman Yussef and David Ramsey

Assessing front end engineering design (FEED) accuracy is significant for project owners because it can support informed decision-making, including confidence in cost and schedule…

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Abstract

Purpose

Assessing front end engineering design (FEED) accuracy is significant for project owners because it can support informed decision-making, including confidence in cost and schedule predictions. A framework to measure FEED accuracy does not exist in the literature or in practice, not does systematic data directly linking FEED accuracy to project performance. This paper aims to focus first on gauging and quantifying FEED accuracy, and second on measuring its impact on project performance in terms of cost change, schedule change, change performance, financial performance and customer satisfaction.

Design/methodology/approach

A novel measurement scheme was developed for FEED accuracy as a comprehensive assessment of factors related to the project leadership and execution teams, management processes and resources; to assess the environment surrounding FEED. The development of this framework built on a literature review and focus groups, and used the research charrettes methodology, guided by a research team of 20 industry professionals and input from 48 practitioners representing 31 organizations. Data were collected from 33 large industrial projects representing over $8.8 billion of installed cost, allowing for a statistical analysis of the framework's impact on performance.

Findings

This paper describes: (1) twenty-seven critical FEED accuracy factors; (2) an objective and scalable method to measure FEED accuracy; and (3) data showing that projects with high FEED accuracy outperformed projects with low FEED accuracy by 20 percent in terms of cost growth in relation to their approved budgets.

Practical implications

FEED accuracy is defined as the degree of confidence in the measured level of maturity of the FEED deliverables to serve as a basis of decision at the end of detailed scope, prior to detailed design. Assessing FEED accuracy is significant for project owners because it can support informed decision-making, including confidence in cost and schedule predictions.

Originality/value

FEED accuracy has not been assessed before, and it turned out to have considerable project performance implications. The new framework presented in this paper is the first of its kind, it has been tested rigorously, and it contributes to both the literature body of knowledge as well as to practice. As one industry leader recently stated, “it not only helped to assess the quality and adequacy of the technical documentation required, but also provided an opportunity to check the organization's readiness before making a capital investment decision.”

Details

Engineering, Construction and Architectural Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0969-9988

Keywords

Article
Publication date: 11 April 2019

Huong Dieu Dang

This paper aims to examine the performance and benchmark asset allocation policy of 70 KiwiSaver funds catergorised as growth, balanced or conservative over the period October…

Abstract

Purpose

This paper aims to examine the performance and benchmark asset allocation policy of 70 KiwiSaver funds catergorised as growth, balanced or conservative over the period October 2007-June 2016. The study focuses on the sources for returns variability across time and returns variation among funds.

Design/methodology/approach

Each fund is benchmarked against a portfolio of eight indices representing eight invested asset classes. Three measures were used to examine the after-fee benchmark-adjusted performance of each fund: excess return, cumulative abnormal return and holding period returns difference. Tracking error and active share were used to capture manager’s benchmark deviation.

Findings

On average, funds underperform their respective benchmarks, with the mean quarterly excess return (after management fees) of −0.15 per cent (growth), −0.63 per cent (balanced) and −0.83 per cent (conservative). Benchmark returns variability, on average, explains 43-78 per cent of fund’s across-time returns variability, and this is primarily driven by fund’s exposures to global capital markets. Differences in benchmark policies, on average, account for 18.8-39.3 per cent of among-fund returns variation, while differences in fees and security selection may explain the rest. About 61 per cent of balanced and 47 per cent of Growth funds’ managers make selection bets against their benchmarks. There is no consistent evidence that more actively managed funds deliver higher after-fee risk-adjusted performance. Superior performance is often due to randomness.

Originality/value

This study makes use of a unique data set gathered directly from KiwiSaver managers and captures the long-term strategic asset allocation target which underlines the investment management process in reality. The study represents the first attempt to examine the impact of benchmark asset allocation policy on KiwiSaver fund’s returns variability across time and returns variation among funds.

Details

Pacific Accounting Review, vol. 31 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

Book part
Publication date: 20 October 2015

Raquel Meyer Alexander, LeAnn Luna and Steven L. Gill

Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001 expanded 529…

Abstract

Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001 expanded 529 plan benefits to include tax-free distributions for qualified higher education expenses. However, regulators, the press, and fund advisors criticized the Section 529 college savings plan industry for inadequate and nonuniform disclosures of investor information, such as historical returns, fees, taxes, and underlying investments. We investigate consumers’ investment choices after a disclosure regime change in 2003 and find that after enhanced disclosures became widely available, investors selected fewer plans offered exclusively through brokers, increasingly chose portfolios based on past investment performance, but remained unresponsive to state tax benefit disclosures. We also analyze the plans’ performance and find evidence that 529 investors are constrained to invest in portfolios with high, return-eroding fees. Nearly 20 percent of the portfolios have a statistically significant negative alpha, the measure of risk-adjusted excess return, while less than 1 percent have a statistically significant positive alpha.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78560-277-1

Keywords

Article
Publication date: 10 November 2014

Callum Thomas and Claire Matthews

The purpose of this paper is probe the early data emerging from the KiwiSaver market and to draw insights on KiwiSaver investor behaviour, particularly in respect of the unique…

Abstract

Purpose

The purpose of this paper is probe the early data emerging from the KiwiSaver market and to draw insights on KiwiSaver investor behaviour, particularly in respect of the unique default provider feature of the scheme.

Design/methodology/approach

The primary source of data for this study is a purpose-built database compiled using data from KiwiSaver providers’ annual reports for the period 2009-2011.

Findings

The study finds that KiwiSaver members, like other investors, are chasing performance and seeking to avoid fees. However, an unexpected negative relation is found for bank ownership.

Research limitations/implications

The key limitations of this data source include the low frequency, differing formats and levels of detail disclosed in various annual reports.

Practical implications

Chasing past performance indicates a need for investor education for KiwiSaver members.

Originality/value

The study provides an initial empirical examination of the KiwiSaver market, and the determinants of the flow of funds and members. The results can be used to guide policymakers and providers in their future decision-making around the scheme and individual offerings.

Details

Pacific Accounting Review, vol. 26 no. 3
Type: Research Article
ISSN: 0114-0582

Keywords

Abstract

Details

Investment Traps Exposed
Type: Book
ISBN: 978-1-78714-253-4

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