InvestmentsFeb 1 2023

Manager receives £24mn fee as trust matches benchmark

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Manager receives £24mn fee as trust matches benchmark

The board of the £961mn Allianz Technology investment trust has revamped its performance fee after the manager received £24.7mn in 2020, with the performance of the trust barely beating the index over the past three years.

The trust's factsheet showed in the three years to the end of November 2022, the trust’s net asset value rose by 51.4 per cent, compared with the benchmark, which returned 49 per cent.

The total fee paid by clients of the trust was 3.66 per cent that year, with 2.88 per cent coming from the performance fee.

As part of the changes to the fee structure, Allianz is entitled to a performance fee of 10 per cent of any return generated above the benchmark. So if the trust beats the benchmark by 1 per cent, then Allianz receives 0.1 per cent of that return.

Previously the manager received 12.5 per cent of any outperformance of the benchmark.

The ongoing charge, that is the portion of the fee paid regardless of performance, has dropped from 0.88 per cent to 0.69 per cent. 

The performance fee number is revealed in the Allianz Technology trust’s 2020 annual report. 

Mick Gilligan, who runs the model portfolio service at Killick and Co, says much of the strong performance prior to 2021 came from just two stocks: Tesla and Zscaler.

While those helped deliver the performance which generated the fee for Allianz, they have underperformed sharply since the fee was paid, with all of the gains above the benchmark disappearing as the shares of Tesla and Zscaler have sold off.

Gilligan says the trust is differentiated from the benchmark.

He said: “It typically holds 60-70 stocks and so is more concentrated than the Dow Jones World Technology Benchmark. ATT also tends to have a greater bias towards mid and small caps and so will have struggled against the index in recent years for that reason.

"There are serious challenges ahead in 2023, not least the forthcoming earnings season and whether tech earnings can still support high valuations. I don’t think ATT fully reflects these risks on a 10 per cent discount, compared to the Polar Capital discount of 12 per cent.”

He said if a trust is levying a performance fee it needs to be compensating clients in other ways. 

Gilligan said: “I’m not generally a fan but where it is in exchange for a management fee reduction and has a decent hurdle it can make sense.”   

Philip Milton, who runs PJ Milton and Co, an advice firm and discretionary fund house in Devon, said: “For the same reasons we don’t levy them on clients, we usually work the hardest we possibly are obliged to do, when things are bad.