Managed Funds Navra Introduce Management Fee

Discussion in 'Shares & Funds' started by Alan__, 30th Mar, 2007.

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  1. Alan__

    Alan__ Well-Known Member

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    Navra announced today that they would be introducing a Management Fee from 1/7/07.

    1.5% for Oz Retail
    1.1% for Oz Wholesale
     
  2. TPI

    TPI Well-Known Member

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    Hi Alan,

    Does that mean if they get 10% income in one year and meet their objective, you only get 8.5%?

    Or that they have to get 11.5% pa to give 10% pa after fees, and meet their objectives?

    GSJ
     
  3. Simon

    Simon Well-Known Member

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    No.

    It means that they have no objective. Regardless of what they make they will take their fee.

    Changes the whole philosophy somewhat and removes much of their point of difference.
     
  4. TPI

    TPI Well-Known Member

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    I haven't read the PDS, but can someone tell me what was their point of difference to begin with, with respect to fees?

    GSJ
     
  5. Alan__

    Alan__ Well-Known Member

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    I guess the Company is caught between a rock and a hard place.

    Realistically I assume they have no alternative, although I would have hoped there would have been some good 'out performance' lately. :confused:

    Presumably if they don't introduce the Fee the Shareholders/Company would be placed in a difficult position, but philosophically and maybe more importantly from a marketing perspective, it is very disappointing. :(
     
  6. TPI

    TPI Well-Known Member

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    So with $186 million FUM, at say 1-1.5%pa that's, $1.86 - $2.79 million pa (rough calculation) in fees. A pretty nice pay cheque, when you have no real objective.

    GSJ
     
  7. Alan__

    Alan__ Well-Known Member

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    I guess the original significant point of difference in relation to Fees was that they were all initially based on 'outperformance'. No Flat Fee.
     
  8. perky

    perky Well-Known Member

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    I think people are forgetting the fact that this can revert back to a performance fee with 3 months notice once again.
    The fund is not outperforming for this financial year, due to the lack of volatility in the market. The last month or so , they have outperformed by around 2% - as we have had two mini corrections.
    If the market returns to more "normal" volatility then I think it will change back.

    For the shareholders in the company - they can sleep a little easier at night now knowing that the income will cover the expenses - and the company won't do a "Fincorp" (I know thats a bit harsh , but no-one wants to see that sort of thing happen - either shareholders or unit holders)....
     
  9. Alan__

    Alan__ Well-Known Member

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    That's very true Perky and hopefully that will occur.

    The next interesting point will be to see what if any difference this makes to FUM inflow/outflow.
     
  10. Glebe

    Glebe Well-Known Member

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    I don't think that's the point though.

    The point of having a purely performance fee was saying to the marketplace 'we are so confident we will beat the index, we're putting our money where our mouth is'.

    They've obviously lost that confidence.
     
  11. perky

    perky Well-Known Member

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    Good point Luke.
    I think in the short term they have lost that confidence.

    But this way they stay afloat - till the time comes when they can really beat the asx200 - then they may revert back and REALLY make some money for the shareholders.
    My view is that they may have jumped the gun a bit - the next 3 months may be similar to what we have had in the last month !!
     
  12. Dr Lobster

    Dr Lobster Well-Known Member

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    Hmmmm, I'm tipping that's gonna be a pretty tough lolly to hand back once its been given a lick.

    8.5% just aint gonna cut it on my margin loan.
     
  13. TPI

    TPI Well-Known Member

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    Yeah right! The alternative is they could keep the 1-1.5%pa AND take an outperformance fee, hence make more money for themselves!

    GSJ
     
  14. Simon Hampel

    Simon Hampel Founder Staff Member

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    Actually they can't - the constitution of the fund won't allow both a flat fee AND an outperformance fee.
     
  15. Simon Hampel

    Simon Hampel Founder Staff Member

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    There is one factor of the performance fee model that a lot of people have overlooked ... and is possibly a very good reason why we won't see a return to a performance fee model.

    If the market does -15% and the fund does -5% (which is an entirely plausible scenario), the fund will earn massive performance fees and they will be crucified for profiting in a falling market. This is the classic "double edged sword" for the fund.

    I get the feeling that the thinking inside the company has changed to offer more certainty in regards to fees.

    The fees being charged are by no means excessive - indeed, I would put them in the lower range for an actively managed fund.

    Although I was initially in favour of a performance fee, after considering the full range of scenarios - I think a flat fee is the best result for everyone.

    With flat fee - unit holders know exactly where they stand, and shareholders get some reliable income.
     
  16. Simon Hampel

    Simon Hampel Founder Staff Member

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    The goal was always to be earning fees - otherwise what would have been the point of starting the company !!!

    Any stated aim of a minimum 10% return would be after fees.

    Indeed, if we went back and applied a flat fee to the returns of the past few years, they still vastly exceed that minimum aim.
     
  17. Nigel Ward

    Nigel Ward Well-Known Member

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    I suppose another way to look at it is that we've had a free ride so far for 3 years fee free and if you average next financial year's fee back over the by then 4 years odd of operation it's a pretty low fee - basically almost in index/old style LIC range.

    Just my 2.2 cents worth.
     
  18. Alan__

    Alan__ Well-Known Member

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    Ok......so what does the introduction of a 1.5% Fixed Fee mean on our cash in hand position at the end of the day?

    Perhaps someone could check my calcs.......

    Assumptions:
    - $100K LOC from property at 7.65% and $100K Margin loan at 8.65% combined to purchase $200K of Fund.
    - Assumed Annual Income of 10%
    - Assumed Annual Growth of 3%
    - Assume Marginal Tax Rate of 30%
    - Assume Margin Loan ratio is to be maintained at 50%
    - Assume Interest on Margin Loan is Capitalised

    Option 1 - No 1.5% Management Fee

    At end of year 1:

    -Cash Distribution is $20K
    -Growth is $6K
    -Interest on LOC is $7650
    -Interest on Magin Loan is $8650
    -$2650 of Cash Distribution is used to maintain Margin at 50% due to growth less than costs.
    - Tax paid of $1150

    Gives an after tax/costs 'income in hand' of $8590

    Option 2 - 1.5% Management Fee

    As above costs but $3000 Management Fee with less tax of $210

    Gives an after tax/costs 'income in hand' of $6490


    Difference between two options is $2100 (8590-6490) or 24.4% (2100/8590).


    Does this sound right?
     
  19. Simon Hampel

    Simon Hampel Founder Staff Member

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    Alan - are you expecting a fee-free investment ad-infinitum ?

    I don't think it is fair to compare the return with fees versus without fees. The intention was always that you would pay a fee ... indeed, the intention was that you would be paying a lot more than 1.5% (performance fees are there to benefit the fund manager - not the investors !!).

    The fact that we have had minimal fees over the last few years was an aberration - not an intention.
     
  20. Alan__

    Alan__ Well-Known Member

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    Yes - point taken Sim.

    I guess my example (if my calcs are correct :rolleyes: ) really just give an indication of the possible cashflow implications from the previous situation.