Rathbone’s David Coombs has claimed the charging structure of Neil Woodford’s soon-to-be launched investment trust is “gimmicky”.
Mr Woodford announced earlier this week he would not charge investors a standard annual management charge but would instead take a performance fee based on certain performance parameters.
Woodford Investment Management said it would be paid exclusively through a 15 per cent performance fee on outperformance of a 10 per cent net asset value return target per year.
The decision to be paid solely through performance fees is an unusual departure from the industry standards of either levying a basic annual mangement charge, based on a percentage of total assets, or an annual charge plus a performance fee.
It means in years where the fund returns 10 per cent or less, or loses money, in net asset value terms the firm will receive no revenues at all.
The performance fee also includes a ‘high watermark’. That means that the trust cannot charge any performance fees on making good any previous underperformance. It has to exceed its highest ever point to reduce the fees.
But Mr Coombs said he wished Mr Woodford would “just charge the right fee” and thinks the fee structure outlined by Mr Woodford “misses the point” of fees.
“There is a lot of noise about fees at the moment and I am finding all the ‘hoo-haa’ around performance fees tiresome,” Mr Coombs added.
Craig Newman, chief executive of Woodford Investment Management said: “Critics of performance fees in the past have pointed to conservative benchmarks that could mean a manager is rewarded even when a fund delivers negative returns.
“We won’t take this easy route.
“We will only receive a fee when the investment trust delivers what we believe is a challenging return, with a high watermark included.
“The investment trust will not be levied an annual management fee and so this removes any notion of effectively double charging. We won’t be rewarded if we underperform.”
