Pathfinder leads the way on fees

Pathfinder leads the way on fees

Fee disclosure in Pathfinder Asset Management’s revised Commodity Plus Fund prospectus registered today “lifts the bar for market standards”, say principals Paul Brownsey and John Berry. “Securities Act disclosure levels do not give investors a full picture of what fees they will pay in the year ahead” says Berry.

“Additional costs (audit, trustee fees etc) and any performance fees cannot be quantified in advance. Fee disclosure by fund managers is backward, not forward, looking.” To address this issue Pathfinder has set an annual cap in its new prospectus on the total expense ratio of the fund. It is currently setting the cap at 1.3% p.a. (including GST) for all charges to its fund. If the actual expenses are higher than the cap, the manager will fund the difference. Berry and Brownsey say the actual charges should in fact come in well under the cap as the fund grows over time.

Berry and Brownsey point out there are other inadequacies with the current fee disclosure regime. Firstly they believe all fund related income for a manager should be disclosed. Some Australian unit trusts sold into NZ have fees embedded in the structure without disclosing them. According to Brownsey “this is simply not acceptable. A manager should not be able to say there are no management fees, and yet be paid under another guise without any disclosure. Investors should be able to see all fees paid to the fund manager - the investment landscape is now all about transparency.”

As a second point they note that performance fees are not required to be included in the Management Expense Ratio (MER) of a fund. “In our view this is a major omission” says Berry. “By leaving performance fees out of the MER, investors get a distorted view of total costs.” Pathfinder does not charge a performance fee and instead argues managers should make significant investments in their own funds to align their interests with the interests of their investors.

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