The Government Pension Investment Fund's latest annual report offers evidence that, despite a new performance fee structure that slashed payouts to managers the year before, the ¥150.6 trillion ($1.4 trillion) pension fund giant remains willing to pay for alpha.
That's not immediately apparent from the year's total fee payouts, which edged up to ¥31.9 billion from ¥29.5 billion the year before — unchanged at 2 basis points of the portfolio.
That total is well below the record ¥48.7 billion GPIF paid to managers for the fiscal year ended March 31, 2018, before it introduced a program offering only a passive fee to active managers that fail to deliver alpha. At the same time, it lifted previous ceilings on performance fees that managers can earn.
But the latest manager-specific payout details unveiled once a year by GPIF showed a handful of managers earning handsome fees.
A Tokyo-based spokeswoman for GPIF declined to provide any further comments on the fund's fee structure beyond the information available in its annual report.
For the fiscal year ended March 31, GPIF's portfolio dropped 5.2%, with foreign equities falling 13.1%, domestic equities declining 9.7%, domestic bonds down -0.36% and foreign bonds gaining 3.55% .
The fee gains were led by the fund's eight active foreign equity managers, half of which bested their benchmarks by a healthy margin. As a group, fees paid to the octet jumped to ¥15.5 billion, or just less than half of the year's total, from ¥10.7 billion the year before.
Leading the way was BNY Mellon Investment Management affiliate Walter Scott & Partners Ltd., Edinburgh, which delivered more alpha for the March 31 fiscal year than any other of GPIF's roughly 45 active managers, topping its MSCI Kokusai benchmark by 7.8 percentage points.
For its efforts, GPIF paid Walter Scott ¥4.14 billion, up from ¥2.30 billion the year before, according to estimates by Pensions & Investments based on the three-year, manager-specific fee numbers the pension fund provides.
That amounts to an 89-basis-point fee margin for the ¥466.4 billion portfolio of international equities Walter Scott managed for GPIF for the latest fiscal year, more than double the 40.5-basis-point margin the firm earned two years before, under the previous fee structure.
Likewise, UBS Asset Management, which exceeded its benchmark by 4.66 percentage points, saw its average fee over the three years through March 31 surge to 43 basis points, up from 24.8 basis points for 2019's three-year average.
UBS' margin was 18.8 basis points for the final three years of the old fee system through March 31, 2018.
(Starting with the fiscal year ended March 2016, GPIF switched to providing manager-specific fee figures for three-year periods, ending its practice of releasing single-year fee data. Single-year fee data for managers with mandates dating back to the fiscal year ended March 2014 can still be calculated; fees for managers with more recent mandates can only be judged on the basis of rolling three-year averages.)
Still, for managers that didn't better their benchmarks, GPIF's 2-year-old performance fee structure remained unforgiving.
For example, Boston-based MFS Investment Management, which trailed its MSCI Kokusai benchmark by a mere 83 basis points for the year, saw its fee margin drop to 4 basis points from 10 basis points for the March 2019 fiscal year and 34 basis points for the year ended March 31, 2018 — the final year under the old fee structure.
Singapore-based Eastspring Investments, whose ¥138 billion, active domestic equity portfolio trailed its TOPIX benchmark by 9.57 percentage points for the fiscal year, saw its average fee margin for the three years through March 31 drop to 23.6 basis points, from 29.9 basis points for the three years through March 31, 2019.
Eastspring was one of eight GPIF active domestic equity managers failing to match their benchmarks for the year, outnumbering the five delivering alpha.
The asset class with the most brutal results for the latest fiscal year was foreign bonds, despite attracting the largest allocations in line with a new strategic asset allocation plan from April 1, 2020, which raised GPIF's foreign bond target to 25% of its portfolio from 15%. Of GPIF's 17 active foreign bond managers, 16 failed to match their benchmarks for the latest fiscal year.
The exception was UBS Asset Management, which exceeded its Bloomberg Barclays Euro High Yield Bonds 2% Issuer Cap Index benchmark by 47 basis points for the year. GPIF lifted UBS's average fee margin for the three years through March 31 to 15.3 basis points from 10 basis points for the three years through March 31, 2019.
Others fared worse, as active foreign bond managers as a group saw the fees they garnered for the latest year tumble to ¥7.1 billion from ¥9.2 billion for the fiscal year ended March 31, 2019.
Among them, Fidelity Institutional Investment Management, which underperformed its Bloomberg Barclays U.S. Aggregate Index by 5.77 percentage points for the year, saw its average fee margin for the three years through March 31 drop to 9.1 basis points, from 15.5 basis points the year before.
Pacific Investment Management Co., which trailed its Bloomberg Barclays Global Aggregate index by 2.26 percentage points, saw its fee margins slip to 4.4 basis points from 11.9 basis points.
Despite the performance fee structure's sharp divide between winners and losers, some GPIF managers said performance fees are an idea whose time has come.
One bond manager with a GPIF mandate who declined to be named said the logic that managers should only do well when their clients do well is gaining traction in the region.
While it's well accepted that even managers who deliver top-quartile performance over the long term can suffer through multiyear periods of underperformance, setting aside sufficient provisions to survive those droughts is par for the course, he said.
Regarding GPIF's relatively aggressive fee structure, analysts say it continues to draw more attention than adherents.
There's "growing interest in performance-based fees but not many are taking or insisting (on an) 'only pay for alpha' approach," noted Ken Yap, Singapore-based managing director, Asia, with Cerulli Associates Asia Pte. Ltd.
For asset owners focusing now on boosting overseas and alternatives allocations, there's some openness to paying the fees needed to attract "best-in-class" external talent, he said.
Most asset owners "are following the GPIF discussions but no one else I'm aware of is going full in," said a veteran asset management consultant, who declined to be named.
"I think for now it's a mix of most other asset owners either not being big enough to have that level of influence with global managers, or the fear that they will not have big managers pitching for the mandates," he said.
Meanwhile, GPIF's latest manager performance data offer no evidence yet that the new fee structure is producing more alpha on balance for the fund. For the fiscal year ended March 31, only 18 of GPIF's active managers topped their benchmarks while 29 underperformed.
The previous year saw a less lopsided outcome, with 24 besting their benchmarks and 25 failing to do so.
Combined, GPIF's eight foreign equity managers delivered 3.17 percentage points of alpha, helping lift their annualized contribution to performance for the past five years to 1.04 percentage points, up from a negative 9 basis points for the five years ended March 31, 2019.
But the fund's foreign bond managers, combined, trailed their benchmarks by a hefty 6.87 percentage points, dragging their annualized contribution to performance over the five years through March 2020 into negative territory, at -48 basis points, from a positive 73 basis points for the five years through March 2019.
GPIF's domestic equity managers trailed their benchmarks by 2.08 percentage points, narrowing their five-year contribution to performance to 20 basis points from 92 basis points the year before.
July 13, 2020 at 11:00AM
https://ift.tt/2C42Tgk
GPIF fee structure offers carrots as well as sticks - Pensions & Investments
https://ift.tt/2V2KNkZ
carrot
No comments:
Post a Comment