NZ Fund Managers

[Snoopy]

$23.3m & $16.6m in performance fees paid across FY21 and FY20, respectively. Big sums. Note 1 page 28.
https://app.companiesoffice.govt.nz/...9381175A8E7B22

might have to go for a few years without any performance fees thanks to their high watermark. poor fellas and gals.

I take note of the way Fishers disclose their 'comparative information'.

As an example I look at their international growth fund
https://fisherfunds.co.nz/unit-price...onalGrowthFund

The above 'linked to' comparative graph shows the actual performance of their 'International Growth Fund' to the comparative 'International Equity Composite Index'. As it happens, their international growth fund shows a nice premium to their comparative reference index over time. However, my reading of the investor documentation is that 'bonus' payments to Fishers are not related to this difference. Instead the 'performance hurdle' for all Fisher funds is 'OCR + 5%'. (NZ weighted OCR over comparative period: = 0.25% => OCR + 5% = 5.25%)

The Fishers benchmark policy for international shares is to hedge 50% to the NZD (Refer Paragraph 3.3.6, Fisher Funds Investment Series, Statement of Investment Policy and Objectives, 25th March 2022).

Let's take the example of the year 1st April 2020 (NZD1 = USD0.6054) to 31st March 2021 (NZD1=USD0.7133) to see how the numbers work out.

If the 'International Equity Composite Index' is actually the MCSI world index
https://www.msci.com/our-solutions/indexes/acwi
then that index rose from 442.35 to 680.47 in USD terms over the year ending 31st March 2021.

The base annual fund fee is 1.42% of the asset value (refer https://fisherfunds.co.nz/assets/fac...Fact-Sheet.pdf)

Putting all this information together:

Year 01-04-2020 to 31-03-2021	Starting Position	Ending Position	Gain
Unhedged Gain 'MSCI World Index'	442.35/0.6054	680.47/0.7133	+30.6%
Hedged Gain 'MSCI World Index'	442.35	680.47	+53.8%
Composite Reference Gain 'MSCI World Index' (50% Hedged, 50% Unhedged)			+42.2%
Comparative OCR Fisher Fund Reference Mark			+5.25%
Fisher Growth Fund after fees (Cumulative value $10k invested from 3 year chart)	$10,165	$15,417	+51.7%

Table Notes
1/ Fund performance figures are after deductions for charges but before tax.
2/ Average value of funds under management over period = ($10,165m+$15,417m)/2= $12,791

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The above performance table is all very well. But what we want to know is the growth in the 'International Growth Fund' before fees, so we can get a real handle on what the fees are. This figure is not given. However, if we declare 'F' as the unknown base fee and 'B' as the unknown bonus fee (both measured in the same 'dollar units' as displayed on the fund performance chart), then there is enough information given to allow us to solve this problem. It becomes an exercise in algebra and solving two simultaneous equations.

Base Fee = F = 0.0142x(15,417+F+B) <=> 70.4F=15,417+F+B <=> 69.4F = 15,417 + B <=> B=69.4F-15,417 (i)
Bonus Fee = B = 0.1x( (15,417+F+B)-(1.0525x10,165) ) <=> 10B = 15,417+F+B - 10,699 <=> 9B = 4,718 +F (ii)

Substituting the expression for B from equation (i) into equation (ii) we get:

9x(69.4F-15,417) = 4,718 +F => (625-1)F = (138,753+4,718) => F=230

Putting this value for F back into equation (i) we can now calculate B

B=69.4x(230) - 15,417 = 545

Double Check

Base Fee = 230 / (15,417+230+545) = 1.42% (Check as correct)
Bonus Fee = 545 / (15,417+230+545) = 3.37% (Ouch! No wonder Fisher Funds did not want to disclose this!)

I do note though, that in recent years, Fishers have revised their bonus policy, so that the bonus fee never comes out as more than 2% of the gross value of the fund. That means the total fund fee for the period under consideration was 'only' 1.42%+2%=3.42%. That does sound high, even though we were dealing with an unusual period which started from the 'near the post Covid-19 shock low' and ended with a substantial market recovery.

The total value of the 'International Growth Fund' stood at $98.8m as at 31-03-2021. So this implies 'management' plus 'bonus' fees of
($98.8m x 0.0142=) $1.4m and ($98.8m x 0.02=) $2.0m respectively.

The performance fee figure quoted by FM of $23.3m was across all funds managed by Fisher Funds. The particular fund example that I have looked at is likely one of the worst affected by performance fees. Was that excessive over such an exceptional year? Fisher Funds have not been reappointed as a default provider for Kiwisaver funds at the latest reset which took effect from December 1st 2021. Perhaps therein lies the answer?

SNOOPY