Axiom Fund of Ucits alternatives funds eliminates management fee
Axiom Fund has eliminated management fees on the fund of alternative Ucits funds, in the latest sign the onshore hedge fund industry is addressing investor concerns about poor alignment of interests by the parallel offshore community during the 2008/2009 crisis.
Many clients of offshore funds of funds were frustrated at the fee levels and structures they paid – and continued to pay, in the case of fixed charges – during 2008 when their managers lost 21% of their money.
Many argued the industry had made itself rich, at their expense.
Axiom Fund, by contrast, will become wealthy only if its clients do, after it cut the 1% asset-based fee and replaced it with a 10% incentive fee, with a high water mark.
The only set fees investors in the index-based fund will pay will be a 25 basis point charge for custody and administration, and 25 basis points as an index fee to Alix Capital, which provides calculation and research for the 50-member fund index the portfolio is based on.
Alessandro Mauceri, chairman of Axiom Fund’s board, said 50bps for Axiom compared well to 75 to 100bps for other alternative multi-manager index funds, which he said was “not an ‘index fee’ any more, but more like a management fee.”
Louis Zanolin, Alix Capital’s CEO, conducted research recently that found offshore funds of funds’ fixed charges came to about 180bps. Prospectuses of offshore funds allowed “all kinds” of extra levies to be charged, in addition to the headline fees.
Making fees more transparent is just one way the onshore Axiom Fund is ‘righting the wrongs’ many investors in the parallel offshore fund industry felt they suffered during the 2008/2009 crisis.
Many investors felt their interests were not aligned enough with those of offshore managers who might have provided poor transparency, invested heavily in illiquid securities without investors’ full knowledge, and then gated or suspended redemptions from portfolios in late 2008/early 2009.
“It was a big shock in 2008/2009 to see managers just weeks before say that less than 5% of their portfolio was in private or illiquid assets, only then to find 30% or more of their assets were, and the manager [then installed] a side pocket.”
Mauceri believes only 30% of those managers who curbed subscriptions were justified doing so, the rest acted out of need, for example, to save their business from lethal outflows.
The result? “The hedge fund space is something that makes sense, although in an offshore unregulated, offshore vehicle it is something that does not make sense any more,” says Mauceri.
“We found out the hedge fund framework was allowing managers in most strategies to replicate or at least run an alternative strategy in a regulated vehicle.”
Hedge funds governed by Ucits rules must offer at least fortnightly liquidity – though 84% offer daily – have service providers regulated in Europe, diversify portfolios by securities to minimum set standards, and generally provide more transparency to clients, said Zanolin.