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By Nick Reeve | Published Jul 09, 2012

Advisers call for fund fee refunds over Libor rigging

The fund industry is facing calls to assess whether it may have inadvertently been overcharging performance fees, as the full scale of the bank rate-fixing scandal becomes clear.

Investment Adviser research has found that there are at least 69 funds available to UK retail investors that are benchmarked to outperform either Libor or Euribor – measures of the interest rates banks charge when they lend to each other.

But Barclays has been fined a record £290m by UK and US authorities after its traders attempted to artificially lower the rates – and as the scandal unfolded last week experts said the Barclays fine could be the tip of the iceberg as the whole banking sector is under investigation.

If bankers did successfully lower Libor or Euribor artificially, funds that charge performance fees on any outperformance of the benchmark rates will have inadvertently charged more than they should have if the rates were set correctly.

Richard Saunders, head of fund manager trade body the IMA, last week said managers were already asking whether clients may have lost out as a result of Libor manipulation, adding that tracking the effects of the rate rigging on portfolios could be “mind-bendingly complex”.

But advisers called for fund managers to do just that, and said they should even consider refunding performance fees once the full extent of Libor manipulation has become clear.

Libor-benchmarked funds which charge performance fees include Mark Lyttleton and Nick Osborne’s £966.9m BlackRock UK Absolute Alpha fund, Philip Gibbs’s £719.2m Jupiter Absolute Return fund and five of RWC Partners’ absolute return portfolios.

Darius McDermott, managing director of Chelsea Financial Services, said: “If there has been a substantial manipulation of Libor [by banks], with managers collecting performance fees [based on the Libor rate], we would like to see something done, such as performance fees returned.”

Mark Waters, investment manager at Skerritts Con-sultants, said: “There are questions about the returns people are getting. It will depend on how bad the manipulation has been – whether it was isolated incidents or whether more banks were involved.”

Financial planner and AWD Chase de Vere communications chief Pat Connolly agreed a review of funds charging performance fees would be “ideal” but warned it would be “impractical” for regulators to ascertain the full effect of keeping Libor artificially low.

“It’s too early to rule out anything yet as we’ve only really seen the tip of the iceberg,” he added.

“There could be a lot more yet to come out, and there may be things that the FSA doesn’t know yet.”

Christopher Peel, chief executive of multi-manager firm Blacksquare, said there was a “rationale for clawbacks” of performance fees if such fees were calculated using a rate which was manipulated.

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