Allianz Global Investors has announced plans to introduce a new 'outperformance' fee model on a number of its funds, which it said is in response to the rise of passive vehicles.
The group has proposed introducing a lower fixed basis fee of 20bps across a number of its UK retail funds alongside, provided the fund beats its benchmark, an additional outperformance fee of 20%.
It will initially be implemented through a new 'outperformance' share class on five of its equity funds including the Allianz Best Styles Global Equity, Emerging Market Equity, Global Equity Insights, UK Mid Cap and UK Opportunities funds.
This will take place next month and depending on industry response, could be introduced for other vehicles.
The launch of this share class represents the group's 'Value.Shared' approach and comes as ETF and passive products continue to gain popularity.
Andreas Utermann, chief executive and global CIO, said: "It has been clear for a while that active management has been under pressure. But as the interest cycle looks set to turn, correlations are reducing and volatility is increasing - this is an opportunity for active managers.
"This has been at least a five-year project. It is something that a lot of people said cannot be done, including stakeholders and even competitors. It has taken a while because if you introduce performance fees there is a risk of cannibilisation and volatility.
"The trigger for our decision was responding to the rise of passives. If you are committed to being active and suddenly a wave of passive comes, you either cave and introduce ETFs just in case - then you have lost the battle because you folded - or you find a way to tackle this.
"The problem was not a superiority of passive over active but the fact the active industry had stuck to a pricing model that had not adjusted with the times including the fact beta had become less expensive than it was. Not responding to do that meant you had a value proposition not in tune with what clients wanted or needed."
The share class of the five funds in the initial UK roll out will have a low minimum fee to cover the management and fixed costs of the fund. On any day a fund outperforms its benchmark, a fixed additional fee of 20% of that day's outperformance will be accrued as a performance fee.
At the end of the year, if the fund's overall performance has been positive, AllianzGI will be paid the total performance fee accrued during the year.
Underperformance will also be recorded on a daily basis and will reduce any outperformance charge. If at the end of the year, the fund has underperformed its benchmark, clients will only pay the lower fixed fee. Any underperformance will also be recorded and carried forward for up to five years, or until the underperformance is recovered.
This comes after Fidelity announced plans to introduce a performance-related variable fee on its active equity fund range last year.
In October, the group said the "fundamental change" to its charging model would see a variable management fee option for its active equity funds that will depend on their performance relative to a benchmark.
It expected to offer the structure through newly-launched share classes in Q1 this year, though this has been pushed back until FCA approval has been authorised.
Fidelity said the move was "in response to the growing debate around the value of active management".
Effective 2 March 2020
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