This type of fee on a fund in Europe can be represented either in a bid/offer spread on the fund’s unit price, which means that the introductory commission is anything between 2 per cent and 8 per cent, or it can take the US mutual fund route and be charged at the back of the fund. If the money to cover this fee does not come out of the bid/offer spread, it is usually paid for out of the brokerage commission or management fees.

Management Fees

These charges are anything from 1 per cent to 6 per cent of the assets under management per annum and come straight out of the fund.

Incentive or Performance Fees

These are usually paid on a net new high basis and can be anywhere between 15 per cent and 30 per cent. Net new high means that if a CTA achieves a new high, over the old one, he gets a percentage of that new high profit. Some funds with multi-adviser structures limit the performance fee to only that part of the money that the CTA himself manages —so if a currency-based CTA achieves a net new high and no other CTA does, then just the currency orientated adviser gets the performance fee. This is known as the netting of performance fees.

The question of how much of the fund is considered to be an asset also has a different answer in each quarter. Meaden and Fox-Andrews say:

Other [concerns] are much more prickly indeed. Should the interest income earned on assets not allocated to trading be included in ‘net new’ profits for example? Some industry participants argue that it is outrageous for an investment manager to earn an incentive fee on interest income. Others argue that the manager who makes a deliberate decision to stay out of the markets for a time, has made a responsible investment decision and has every right to charge an incentive fee on interest income.

Incentive fees or brokerage commissions might appear to be the least controversial of the fees charged on funds, but it is in the small print in the prospectuses of these funds that the investor may find further drains upon the fund’s resources. It is not uncommon, for instance, that fund managers whohire intermediary CPOs to organise the CTAs will charge a further lump sum fee annually against the fund.

Possibly related posts: (automatically generated)
Introductory Commission

• The Simple Managed Futures Trading Regulatory Recourse
• Regulation of Managed Futures Funds in Europe Part 5
• Regulation of Managed Futures Funds in Europe Part 2
• Market Wizards
• Where Do You Look for the Next Paul Tudor Jones? Part 2
• Brokerage Commissions Part 1
• Managed Futures Paperwork and Other Regulatory Matters
• Regulation of Managed Futures Funds in the US and Japan
• Regulation of Managed Futures Funds in Europe Part 4
• Common Terms Used in Measurement of Futures Funds