The Association of Investment Companies (AIC)has welcomed a consultation launched today by the Department of Work and Pensions (DWP) on removing performance fees from the charge cap that applies to default funds of pension schemes.
The consultation, ‘Enabling Investment in Productive Finance’, proposes that “well-designed performance fees” should not be counted within the cap.
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “We are pleased to see the government looking at ways to encourage pension schemes to broaden their horizons and invest in a wider range of assets. This could provide savers with greater diversification and increase returns, as well as channelling investment into productive areas of the economy.
“Investment companies, with their closed-ended structure, offer an ideal way for investors to access alternative assets that are harder to buy and sell. This year we have seen record fundraising driven by renewable energy infrastructure, mainstream infrastructure and growth capital. This reflects strong performance, with the AIC’s Infrastructure sector returning 196% over the past ten years and the Private Equity sector returning 526%, versus a return of 107% for the FTSE All Share over the same period.
“It is understandable that costs are a focus for investors and regulators. However, investment performance and the potential for superior returns should not be overlooked and there is a need to properly balance costs with the potential benefits. We welcome the proposed removal of performance fees from the charge cap as this should enable a more balanced view of costs and benefits to be taken, to the overall advantage of the underlying investors.
“All fees, and especially performance fees, need to be well-designed to ensure they are fair to investors. For an investment company, fees are negotiated by the board, who have a legal duty to act in the interests of shareholders. In recent years we have seen widespread fee renegotiations within the investment company sector, including the abolition of performance fees and introduction of more tiered fees, to ensure shareholders get a better deal.
“Pension funds seeking exposure to alternatives should consider investment companies within the mix. They offer a strong performance record, robust governance, active oversight of fees and the ability to trade on the stock exchange, making them the right structure to access illiquid assets.”