Join our investing community

NavraInvest Fee Structure

Discussion in 'Managed Funds & Index Funds' started by Alan, 4th Apr, 2006.

  1. Alan

    Alan Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    603
    Location:
    Sydney
    While NavraInvest have just closed another Quarter, it appears they have done so again without earning any 'outperformance fees' due to their Performance Fee structure. Good news for Unitholders, not such good news for Shareholders.

    Not earning any fees for extended periods would presumably be a problem for any business and if this did continue I guess one of the likely options(but certainly not a given) would be to convert to a 'fixed fee' rather than a 'performance fee'.

    My question is, IF the Fee Structure of the Fund changed from 'performance based' to a 'fixed fee', would it have an affect on your decision to invest in any way?
     
  2. Leandro

    Leandro Well-Known Member

    Joined:
    8th Dec, 2005
    Posts:
    228
    Location:
    Sydney
    Well,

    I would definately have to rethink the investment i have made as that was the biggest selling point when i first entered.

    The idea that 'we' (NavraInvest) only get paid when we have done our job and returned to you better than average results was a deal closer.

    However, if a fixed fee is involved how can one determine if your best interest are truly being catered for anymore?

    I would hate for NavraInvest to go down this path.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    I think discussion of a fixed fee is a little premature.

    One of the first steps that will be taken is a move to quarterly calculation/collection of fees rather than the current annual collection.

    I personally think it was an overly optimistic strategy to take on a once-a-year performance fee, since there are so many variables that can impact on your ability to collect a fee at all, while the fixed costs never actually change.

    The company needs income to survive, and if they are currently not charging enough, then they need to change their strategy. The quarterly fees is a good step in the right direction I feel, and I don't have a problem with this as either a shareholder or an investor.

    However, the question you asked was about fixed fees (by which I assume you mean a flat percentage of FUM is taken each quarter/year in fees).

    Personally I don't like fixed fees - especially when they are high and in no way related to the performance of the company.

    However, that wouldn't stop me investing in a fund. It depends on the nature of the fund and how well I think they perform despite their fees. I think anything above about 1.5% is too high. Entry and exit fees are evil and should be outlawed (general statement - not directed at NavraInvest)

    What I would like to see is a hybrid approach. A small fixed fee to cover operational costs, and then a performance fee for when they do really well.

    Something like (for example), 0.5% of FUM, plus some percentage of the outperformance over and above the ASX200 index (that percentage would be slightly lower than the current performance-only fee to compensate for the fixed fee).

    I'm not sure whether it makes things overly complicated - but another possibility is a choice of fees.

    Offer investors a choice of several unit classes. Some units are charged a fixed fee. Other units are charged a performance fee. The choice of risk is then left up to the investor. Kind of like fixing interest rates versus leaving them variable.

    I suspect the administrative overheads of such a system would make if prohibitive though.

    So would I change my decision to invest in the NavraInvest funds if they changed to a purely fixed fee structure ? It would depend on how much they were looking to charge and how I think it would impact their overall performance. I still like the investing strategy of the fund - and I'm happy with putting my money there ... and so long as the fees weren't unreasonable (in my opinion), then I'd most likely continue to invest through these funds.

    However, I don't think it will get to that.

    Don't forget that with the new American fund, NavraInvest has doubled it's opportunity to earn performance fees (ie, even if the Australian fund underpeforms, the US fund might outperform and earn them a fee).
     
  4. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Sim,

    I thought this had happened already. Aren't fees now "earnt" and paid on a quarterly basis as opposed to "accrued" on a quarterly basis and only paid annually if annual outperformance occurs as well?

    Cheers,
    Michael.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    It happens for the American fund, but the Australian funds haven't changed yet.

    I'm not sure of the current status for the Australian fund - I was under the impression that it still has to be approved ... but they did indicate at the recent shareholder meeting that any change would be made at the end of financial year - too impractical to do it sooner.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    At the end of the day, you regularly need to re-evaluate each of your investments and make a judgement of whether they are meeting your goals.

    If NavraInvest can continue to meet your goals while charging a fixed fee, then I wouldn't think it would be much of an issue would it ?

    If you think you can do better elsewhere, then you need to make a decision as to whether it is worth moving your money - and there's nothing wrong with deciding that it is indeed better to move.

    I don't make investment decisions based solely on the fees charged in the same way that I don't make decisions based solely on the tax effectiveness of an investment (eg negative gearing for the sake of negative gearing).

    I have no problems with other people (eg fund managers) making money - provided that they are meeting my goals at the same time. If I could no longer see them meeting my goals, then it would be time for me to change.
     
  7. TakeStock

    TakeStock Well-Known Member

    Joined:
    14th Aug, 2005
    Posts:
    140
    Location:
    Sydney
    Spot on Sim!
     
  8. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    A couple of funds I know of do this. Pengana do it (although their MER is 1.35% or something crazy like that, but they do perform very very well - so far).

    I *think* Investors Mutual do it as well.

    Mark
     
  9. Glebe

    Glebe Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    932
    Location:
    Sydney, NSW
    If they move to fixed fees I would definitely reconsider my investment because that would suggest to me they are not confident in beating the index.
     
  10. Alan

    Alan Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    603
    Location:
    Sydney
    Umm........why Sim? :confused:

    If I'd said, what would people do IF interest rates rose 3%, would you have said 'I think this discussion is premature'?

    Anyway.......

    I'm certainly not indicating this is going to happen, however since it has been included as an option in their constitution and it has been publicly discussed as an option in certain circumstances, I certainly think it's at least a reasonable thing to discuss.

    My question as to what people's reaction would be was based on the assumption that many people are probably attracted to the 'performance fee' structure and I simply wanted to get a feeling from others if the removal of such a fee structure would affect their investment decision. I don't think this is an unreasonable question and again I am not saying this will happen.

    Ok........why might people's reaction be of interest IF the fee structure was changed?

    Well firstly, I would presume that if an overall fixed fee structure was ever to be implemented, the percentage chosen may very well be closely related to the Funds Under Management. For example, if you have $100mil FUM, you have bills of $1mil then you might say a 1% fee would cover all costs and everything would be sweet. However, if the change to a fee structure caused FUM to be significantly reduced, then it might be reasonable to expect any fixed fee would need to be higher. Hence my question as to how people feel they would react to a change in fee structure. Again, I am not saying this will happen but simply discussing the ramifications of particular scenarios.

    Incidently, I also have no problem with the Fund converting to Quarterly Receipt of Performance Fees.
     
    Last edited by a moderator: 4th Apr, 2006
  11. D&K

    D&K Well-Known Member

    Joined:
    14th Nov, 2005
    Posts:
    206
    Location:
    Canberra
    I think that there is a valid argument to changing the fee structure, but obviously how it is changed and the rates would influence my decision.

    I think perhaps a portion fixed and a portion performance is reasonable. Retaining some performance fee is good for all the reasons that even Steve says, it's the incentive to make sure they do their job. But it's also part of their job to reduce risk and in doing this they also spread across sectors. The current ASX performance seems largely resources lead but spreading exposure in other sectors seems to make it hard to catch the resources lead rise (recent months anyway).

    Problem is, how do you put a value on the management of risk by exposure to various sectors? Fixed fee? :eek:

    I guess another question is: if the market performance has been dominated by one sector recently, is this likely to last or will NavraInvest regain healthy performance fees when/if the other sectors start catching up.

    Probably out of my depth here but maybe some food for thought. :) Dave
     
  12. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    I might have misunderstood at the recent shareholders presentation (I actually even took notes, but God knows where they went :p), but I gathered the quarterly performance calculation cuts in at the start of next financial year. The only reason it didn't proceed last time was, if I remember correctly from what Bill said at the presentation, due to a "technicality" in the doco that went out to shareholders to advise of the expected change.

    I've previously been told by Tereasa at NI (in the last couple of months) that she has heard nothing of moving to a fixed fee instead of a performance fee. I guess it would make sense that NI would trial the quarterly calculations and see how it affects the bottom line, before moving to the less 'differentiated' fixed fee.

    Cheers
    Carl
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    I only meant that there are two major factors that will come into play before any suggestion of a fixed fee would be considered by NavraInvest. My understanding is that a fixed fee would be considered a last-resort by NavraInvest - and is certainly not something being entertained at this point.

    Those two factors are: 1. the change to quarterly fee collection, and 2. the release of the American fund.

    ... and I certainly wasn't suggesting that your question shouldn't be discussed (indeed I think I did proceed to discuss it in a bit of detail :D ) ... I just wanted to make it clear that I don't think a fixed fee is something we will NEED to be discussing in the immediate future because it's not likely to be implemented anytime soon (in my opinion) because of the factors I mentioned above.
     
  14. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    Moving on from Carl's post, I'm wondering how many people were at the shareholders presentation and how many were paying attention? Honestly.... The one I went to, the fee structure for the US fund was clearly explained and the 'possible' move for the Aussie fund was well... exactly the same thing, depending on a vote.

    Not once was a fixed fee even discussed. In fact, Steve has ALWAYS been absolutely clear on where he stands with regards to fixed fees. To those with short memories, he DOES NOT BELIEVE IN THEM. It's always been about a performance fee and I seriously doubt Steve would ever change that structure.

    I'm utterly utterly confused as to why this IS being discussed? Maybe it's just cause it's late and I'm really tired....

    Mark
     
  15. Alan

    Alan Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    603
    Location:
    Sydney
    Hi Mark.

    You made the point that Steve has always been totally against a Fixed Fee and I couldn't agree more. I think a move to a total fixed fee would be an absolute and utter last resort.

    In addition, they have done some good stuff when it comes to reducing costs, starting new fund etc. The move to calculating Performance Fees on a Quarterly Basis rather than an annual basis is fair enough and would imagine should result in a smoother cashflow outcome. All acknowledged. :)

    My point is, whether Performance Fees are calculated Yearly, Monthly or Daily, they do have to be coming in and they do have to be more than your costs. If they are not, then presumably alternatives would need to be investigated. If certain alternatives were chosen, and not wildly fanciful ones by the way, ones that are specifically allowed for as an option in their Constitution, what would people's reaction be? That is all I am asking.

    Steve and his team have done an amazing job in building the FUM to its current size and this does give them some real alternatives if need be.

    This is not a question I would ask in Year 1 or even Year 2 of a Company starting out with a fixed amount of Capital but if Performance Fees haven't been quite paying their way by Year 3 etc. then I would hope I'm not the only one asking what would be done if the current bull run goes for another year or two and evenly Quarterly collected Performance Fees weren't sufficient?

    Maybe it's just early in the morning and I haven't had my coffee yet Mark, but I can't understand why this wouldn't be a very real issue for discussion.

    It may just be me who is interested in this aspect and I'll bow to the rest of the Forum......if people think it's worth discussing then I guess they will, if not then its obviously not an issue to people. :)
     
  16. gazza

    gazza Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    214
    Location:
    Canberra
    Mark

    I did go to the Canberra shareholder presentation and I did indeed pay attention. It was announced that from July 1 this year, the Aussie fund would be collecting fees on a quarterly basis. Some of the slides presented by Bill were designed to show how much income NI would have made over the last number of years (had the fund being in operation) if they were collecting fees on a quarterly basis as opposed to annually. I even asked Bill and Steve during question time, whether a vote was needed and whether it could cause people to redeem their units. Their answer was that no vote was required and that in general people were more than happy with the move to quarterly fees for outperformance.

    However I can confirm there was no talk of introducing a fixed fee structure.

    Gazza
     
  17. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    Alan,

    Yes, absolutely. Couldn't agree more - as a shareholder and unit holder! It's in my interests (and everyone's, really) that the company makes money, hence the reason they are switching to quarterly fee payments.

    In the tables that Bill showed at the presentation, I saw marked evidence that had fees been taken quarterly, the company would have been making money by now (well.... pretty sure, my memory is kinda shoddy).

    I like the way that the company is moving and I feel the new fee setup is fair and equitable for both shareholders and unit holders.

    Mark