Management and performance fees are two primary costs associated with professionals overseeing your assets. In simple terms, they're the price for expertise in handling your investments. This article will clarify these fees and provide a real-world example to showcase their impact.
Let’s break them down.
Management Fees
A management fee is a charge you pay professionals to oversee your investments. Essentially, you’re compensating them for their expertise in helping your money grow. This fee, typically a percentage of the managed amount, covers their costs and ensures they make informed decisions for your assets.
Performance Fees
Reward investment managers for enhancing the value of the portfolios they oversee. These fees are determined by how much the current value of the portfolio exceeds its previous peak value, known as the high-water mark. This structure encourages consistent portfolio growth.
Key Concepts:
1. High-Water Mark: The highest recorded value of the investment. Performance fees are only levied when the portfolio’s value exceeds this high-water mark, ensuring that clients don’t pay extra for prior performance levels.
2. Fee Percentage: Computed as a percentage of the growth that surpasses the high-water mark.
3. Review Period: The portfolio’s performance and associated fees are assessed monthly.
Three-Month Scenario:
You start by investing $2,000,000.
The agreed fees are:
- Management Fee: 1.10% annually, or approximately 0.09167% monthly.
- Performance Fee: 10.5% on returns above the high-water mark.
For a complete list of fees and expenses, please refer to the Product Disclosure Statement, found here, Book 1 pages 19-23 and Book 2 page 13. Please note the fees and costs for the Apex Separately Managed Accounts was reduced as of January 1st 2024, please refer to the update here.
Detailed Monthly Performance
From this detailed monthly performance table and the provided explanation, you can see how the combination of the management fee and performance fee influences the net asset value (NAV) and how the high-water mark evolves over time. This structured fee system aims to ensure that the investment manager’s earnings are directly tied to their ability to achieve consistent growth, surpassing previous performance peaks.
| Month | Starting Value | Monthly Return % | Value Before Expenses | Management Fee $ | Value After Management | Growth Above HWM $ | Performance Fee $ | Value After Performance | New HWM |
| 0 | 2,000,000 | ||||||||
| 1 | 2,000,000 | 1.50% | 2,030,000 | 1,861.83 | 2,028,139.17 | 28,139.17 | 2,954.61 | 2,025,184.55 | 2,025,184.55 |
| 2 | 2,025,184.55 | -1.20% | 2,000,882.34 | 1,834.14 | 1,999,048.20 | – 26,136.36 | 0 | 1,999,048.20 | 2,025,184.55 |
| 3 | 1,999,048.20 | 2.00% | 2,039,029.16 | 1,869.11 | 2,037,160.05 | 11,975.50 | 1,257.43 | 2,035,902.61 | 2,035,902.61 |
Important Note: The above illustration and the examples below only provide a representation of how fees may be calculated. This illustration above and the example below are for educational purposes only and do not reflect actual fee structures for specific financial products. It is important to refer to the PDS of each product
Breakdown of a Three-Month Scenario:
Month 1:
The investment appreciates by 1.5%, reaching a value of $2,030,000 before expenses.
The Management Fee is $1,861.83, reducing the value to $2,028,139.17..
Growth above the initial high-water mark ($2,000,000) is $28,139.17, leading to a Performance Fee of $2,954.61.
After deducting this fee, the new high-water mark is set at $2,025,184.55.
Month 2:
The investment faces a dip of 1.2%, decreasing its value to $2,000,882.34 before deducting fees.
After the Management Fee of $1,834.14, the remaining value is $1,999,048.20.
Since this is less than the high-water mark from Month 1, no Performance Fee applies.
The high-water mark remains unchanged at $2,025,184.55.
Month 3:
The investment gains 2%, resulting in a value of $2,039,029.16 before fees.
Post the Management Fee of $1,869.11, the value stands at $2,037,160.05.
The growth above the Month 2 high-water mark amounts to $11,975.50. This yields a Performance Fee of $1,257.43.
After accounting for this fee, the updated high-water mark is $2,035,902.61.
Important Notice: This information has been prepared and issued by Rivkin Securities Pty Ltd (ABN: 87123290602, AFSL: 332 802).
Please consider your own financial situation before investing in our products. Rivkin does not provide personal financial advice and does not take anyone’s personal financial situation into account when structuring its model portfolios. Please click here or request the PDS to understand the full risks and cost of the product before making a decision to invest in it.
Past performance and/or backtesting is not a guarantee of future performance. Investing and trading carry financial risk, when judging performance please consider the different types of investments and levels of risk associated. To learn more about how we calculate performance click here.
The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150) (part of Perpetual Group ABN 45 003 278 831 AFSL No 235150) is the responsible entity and the issuer of units in the Apex Separately Managed account. It is general information only and is not intended to provide you with financial advice, and has been prepared without taking into account your objectives, financial situation or needs. You should consider the product disclosure statement, available on www.rivkin.com.au, prior to making any investment decisions. If you require financial advice that takes into account your personal objectives, financial situation or needs, you should consult your licensed or authorised financial adviser. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.
All opinions and estimates constitute judgments of Rivkin and are subject to change without notice. These statements should therefore not be relied upon as an accurate representation or prediction as to any future matters. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.
PERPETUAL BEING THE ISSUER AND RESPONSIBLE ENTITY UNDER The Trust Company (RE Services) Limited (Perpetual, Responsible Entity, RE, we, us or our), part of the Perpetual Group ABN 45 003 278 831 AFSL No 235150
