Hermes BPK, the hedge fund-of-funds (HFoF) provider majority-owned by Hermes Fund Managers (which itself is fully-owned by the UK’s largest pension fund, the BT Pension Scheme), has completed work on an innovative performance fee model which will allow investors to clawback any unearned performance fees.
The model, which partners Matteo Dante Peruccio and Mark Baker discussed with conexust1f.flywheelstaging.com in April last year, has been designed with the long-term alignment between investor and manager in mind, and it encourages investment managers to focus on managing the money, not gathering assets.
The new fee structure, which applies to the HFoF fees and not to the fees charged by underlying managers, is such that the fee in any one period is taken but the performance needs to be maintained for the manager to keep the fee.
If the performance is below the watermark over three years, then the client gets the fee back on the part of the performance they have not received. The model is administratively complex and required considerable cooperation by the fund’s adminsistrator, Northern Trust.
“We should be earning, not taking, our fees,” chief executive Perruccio said in April. “We deserve to get paid for what we do but we need to earn them, this has very positive repercussions in the way we manage money including transparency and alignment.”
Hermes BPK offers three hedge funds which attract a negotiable management fee that starts at 1.5 per cent, and a 10 per cent performance fee.
The £34 billion ($54 billion) BT Pension Scheme seeded the boutique, which is now one of 10 investment boutiques within the Hermes stable, with a $1.3 billion mandate. The three funds now have $1.6 billion under management collectively, including money from three external clients.
