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Use of performance fees by unit trusts and OEICs has declined slightly, says Lipper

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The overall use of performance fees by unit trusts and OEICs has declined slightly in recent years, with the number of new fund launches adopting such fees falling dramatically and other funds being closed or merged, according to research from Lipper.



Around three per cent of unit trusts and OEICs overall have a performance fee structure. Among absolute return funds (including offshore funds) this figure rises to 63.5 per cent, while 54 per cent of locally-domiciled absolute return funds use a performance fee.
 
Looking at the IMA Absolute Return sector, the delivery of above zero rolling 12-month returns is not substantially different between funds with or without performance fee structures in place.
 
The average standard deviation and maximum drawdown for absolute return funds with performance fees are slightly higher than for funds without this fee. This can be explained by a significant minority of funds with performance fees having historical risk characteristics out of line from the rest of the sector.
 
Even in the absolute return sector investors are not forced to invest in funds with performance fees, both because a sizeable proportion of these funds maintain a more conventional fee structure, and because funds with performance fees have not demonstrated, on average, that they deliver better returns or lower risk.
 
Ed Moisson, Lipper’s head of UK and cross-border research, says: “This research shows that investors – albeit primarily through their advisers – can have a very real influence on the fees being charged by funds. At the same time it seems much more likely that most of the new launches using performance fees will come from ‘offshore’ rather than locally domiciled funds.”

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