Fund managers are getting quite used to moaning about their fees. But now their biggest customers are starting to question the economic principle that underpins the pay packets of their entire industry. We all know investors' usual grumbles: fund managers earn too much, they take too large a share of performance (when they manage it), they don't compete on price, and they don't suffer losses when they lose investors' money. But...
Some of the world's largest institutional investors are beginning to question how they compensate external asset managers. The age-old system of charging a percentage of the assets managed has come under increasing scrutiny recently, with investors like Japan's Orbis Investments looking to compensate managers based on performance rather than total assets managed. Consultancy Mercer has said fund managers combining a flat initial fee with performance-based compensation have proved to be competitive. Among larger asset managers, Fidelity International and Government Pension Investment Fund have drawn plaudits for being creative with fee structures.