Performance-related fees are nothing new, but in an investment market battered by low interest rates, the rise of robo-advisers and cut-rate index funds, perhaps it’s time to revisit the formula. Allianz Global Investors, the fund-management arm of Munich-based insurer Allianz, is launching an American pilot project in a bid to shake up the sector.
With some €500 billion under management, the German company is primed to carry out a large-scale test using new equity funds for private clients in the United States. The difference this time? Allianz will charge commission only if a client’s holdings outsprint the market benchmark.
With a portfolio of bespoke stocks, these three Allianz funds – still awaiting regulatory approval in the United States – aim to outperform the S&P 500 Index, a popular benchmark for stock performance in the US. That in itself isn’t unusual, but the basic micro-fees are. In Europe, the going commission on actively-managed stock funds is around 1.7 percent of assets. By contrast, Allianz’s new US funds will charge almost nothing – a razor-thin 0.05 percent, just to cover their fixed costs.
Investors pay a higher commission only if the fund manager scores a return on investment at least 20 percent above the S&P 500. If the fund underperforms the benchmark, the investor naturally sees less return on investment, but at least they don’t have to pay any extra fees.