The new management fee structure adopted by Infiniti Capital is likely to ruffle a few feathers in the fund of funds industry. The Swiss investment house is launching a fund of funds, for wealthy individuals and institutional investors, on a zero entry fee basis.
"As far as I am aware, we are the first fund of funds to do so," says Anric Blatt, chief executive of Infiniti. "While we may get fan mail from clients, we could also get hate mail from competitors," he jokes.
The idea behind the concept is to increase transparency - a process dubbed "going naked" by Blatt. "Recent history of fraud, overcharging and lack of transparency by banks has made clients wary. With the new fund of funds, clients can see where their money is going," he says.
The fund of funds follows the structure of Infiniti's present managed accounts, with clients' money being divided into three sub-funds with varying levels of risk.
But instead of the 2% entry fee and 20% performance fee, the new fund of funds will have a straight 25% performance fee of the increase in NAV. The 5% margin will go towards paying the distribution partners.
Clients will be encouraged regularly to bank the profits made on the higher performing sub-funds to the security sub-fund, which is lower in risk, and offers around 7% to 10% in returns.
Asian success
The fund will close at $800 million, and is expected to attract $40 million to $50 million every month from both new clients and old clients who have chosen to switch out of their managed accounts.
The family office, out of which Infiniti grew, will invest $100 million for every $100 million raised.
At present, the fund of funds is being marketed in Asia only, where young Chinese and Japanese entrepreneurs have shown the most interest. In 2004 Infiniti hopes to find solid distribution partners in Europe.
While Blatt admits that Infiniti's move may not change the face of management fee structures, he is confident that other players will want to follow suit. "The concept is already spilling over. Some of our underlying managers have offered us discounted management fees.
"The harsh reality is that [many fund companies] can afford a degree of complacency with regard to their clients, because they get paid no matter whether they make money or lose it. The future though, belongs to those who are prepared to be paid on results."
Not all market participants agree. Christoph Moeller, managing director and head of global sales and marketing at Man Investments says: "Man believes strongly that management fees as well as performance fees will continue to co-exist. We do not see margin pressure for good performing managers."