This does not mean a return to hedge funds’ ‘2 and 20’ performance fees model and their failed ‘alignment with investors’ argument but what it will hopefully mean is a closer relationship between the rewards given to a fund manager and them delivering on their promise to investors.
Says PwC: “Investors will be less willing to pay their asset managers for beta masquerading as alpha. Organisations will be tasked with demonstrating the alpha they produce for their clients and how much they pay their staff for producing it. Investors and regulators will seek more precision.
“While it is not currently the norm for asset managers to separate alpha from beta for compensation purpose, many firms could be in the process of doing this by 2020.”
This will be difficult to do, but as far as investors are concerned ensuring fund managers’ remuneration – let’s also stop calling it ‘reward’ – is not “unreasonable and insensitive” should be near the top of their agenda.
