Columbia Threadneedle changes fund benchmark

Columbia Threadneedle changes fund benchmark

Columbia Threadneedle has cited low and negative rates in plans to overhaul the benchmark on its £853m UK Absolute Alpha fund in a move to avoid charging clients for losing money in a "low-rate environment".

The long/short fund, managed by Chris Kinder and Mark Westwood, currently charges clients a performance fee when its return exceeds that of cash over a calendar year, measured as the Sterling three-month Libor rate, with income reinvested.

However from the start of next year this benchmark will be amended to the greater of either the Libor rate or 0 per cent, in a move to prevent clients from being charged a performance fee in the event of a loss.

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In a note, Columbia Threadneedle said: “This change is made in recognition of the historically low interest rate environment and the possibility of negative interest rates in order to ensure that a performance fee will not be charged where the fund has produced negative returns.”

This follows on from a summer when several asset managers moved to ditch income goals on their funds, citing the low and negative interest rate environment.

Columbia Threadneedle is also to add a high watermark to the performance fee on its £99m UK Extended Alpha offering, managed by Mr Kinder.

This mechanism is used to ensure that a fund does not underperform in one period, but then charge for separate outperformance later on, before previous losses are recovered.

The fund house said: “Currently, a performance fee is payable on the fund when the relative return of a share class exceeds the FTSE All-Share index (with income reinvested) by more than 2 per cent over a calendar year.

“From January 1 2017, an additional condition – an excess return test – will be applied to ensure that a performance fee will not be applicable unless any underperformance from previous years has been recovered in full.”