Boston-based Sirios Capital Management is to launch the first European active ETF to charge a performance fee. This will work through a so-called “high-on-high” model, charging 20% of outperformance against the previous NAV at which a performance fee has been crystalised.
As initially reported by ETF Stream, the iMGP Sirios Absolute Return UCITS ETF will be a long-short equity fund managed by six sector-specialist analysts, with a cap on net long equity exposure of 30%. Each sector is to be equally weighted. The fund is being launched in partnership with iM Global Partner – making Serios the second US hedge fund with such an arrangement.
Sirios is attempting to introduce hedge fund charging into a wrapper that has – up to now – won support largely on the basis of lower costs, alongside transparency and simplicity. Performance fees are commonplace in hedge funds and some traditional active mutual funds, but they have so far been absent from Europe’s active ETF market. Per Morningstar, the average fee for an equity active ETF is around 0.37%, compared with 1.32% for active mutual funds. Sirios is launching with a 1.2% TER before any performance fee is added.
Our view
David Batchelor, senior analyst at QuotedData, said: “I don’t have a particular view as to whether performance fees are inherently good or bad and – although a new thing for the active ETF market – clearly this is not an unusual arrangement for a hedge fund provider. However, the TER of 1.2% is on the steep side to begin with, even before investors grapple with the performance fee. A high-water-mark, or “high-on-high”, model is at least preferable to a looser arrangement because it means the manager should only receive a performance fee once the fund’s NAV rises above the previous level at which such a fee was crystallised.
While this launch can certainly be read as a further sign that the active ETF sector is broadening and maturing, it can also be seen as an attempt to see just how much fee complexity investors in the wrapper are willing to tolerate. If Sirios gathers meaningful assets, other specialist managers may follow. If it does not, that will suggest the European market is happy to embrace active ETFs, but not at any price”.
