Five Arrows multi-manager service looks for increased discounts on charges
Rothschild Asset Management's £1bn fund of funds division is trying to force unit trust groups it deals with to discount their annual fees by up to 1%.
Investment Week understands that leading groups, including Jupiter, ABN Amro and Merrill Lynch, are not prepared to provide fund management on portfolios with an annual management charge of 1.5% for as little as 0.5% a year. Typically, an annual fee can be reduced as low as 0.75% for funds of funds.
Many of the largest, best known groups that Investment Week has spoken to have confirmed they are either unwilling to deal at Hambi's terms, or are still, like M&G, which has funds in Rothschild's fund of funds offering, in discussions.
Discussions are also underway with Invesco, according to managing director of UK retail, Mike Webb. Invesco was not included, he said, in the Friends Provident offering that Bambos Hambi, now head of the Rothschild service, previously ran.
Jupiter and ABN Amro have confirmed that they would not meet a 100 basis points rebate on annual management charges.
Adrian Wright, sales director at Merrills, said whether or not it was possible to provide fund management for 0.5% depended on volume of business and future sustainability of volume.
Hambi said he was looking for the best deal for investors and that price remained the final factor in the investment process which is focused on selecting quality funds.
Despite this Chase de Vere, which has some of its clients' money in the service, has put the Rothschild portfolios under review. It is concerned that a too aggressive pricing policy could jeopardise the independence of the Rothschild service by excluding fund groups that will not meet the pricing terms. In addition, S&P has put the Rothschild service under review.
Graham Hooper, director at Chase de Vere, said: 'As an unfettered fund manager, if you are not taking funds from the entire fund universe, how can you call yourself independent? We would just want the funds to be selected solely on the outlook of the markets and the manager's ability to do well under those conditions.'
Rothschilds does not believe its policy is damaging the service's independence.
Hambi said: 'Before we select any fund we go through the five 'P's. They are philosophy, process, people, performance and price, in that order. Normally by the time we have got down to the fifth 'P', there are maybe 10 funds in each area that we would want to buy. At that point it comes down to price. With institutional Oeics out there now, there are some interesting prices available. There are some big players out there that are very happy getting 0.5% on a 1.5% annual management fee.'
David Orr, head of retail marketing at Rothschild, said: 'Fund selection decisions are taken from a fund management perspective and if the best fund costs a little more we are prepared to pay for it. Evidently, if we view two funds as offering the same potential, the group offering more advantageous terms will represent a more attractive investment. But it is important to point out that we do not avoid any groups on the basis of price alone.'
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