Apologies – HHL performance fees are 15% of profits above AOAI

Have to acknowledge that I am a share holder and want to see HHL do well. On that basis I would not like to see their fees reduced. At the AGM, management discussed that they were at the high end of the spectrum but justifed the position on the basis that according to Morningstar data, HHL’s major trust, the Value Growth Trust ranks number one out of 1058 managed funds registered in Australia that have a 15-year track record. This is based on its annual compound rate of growth of 16% per annum for the 15 years up to October 2009. They advised that their management fee of 1.6% sits just behind Platinum Managements rate and they don’t appear to have had too much objection to it.

Their outperformance over the 15 years has been 10.8%pa against the MSCI World Total Return Index. They use this international benchmark as it is a global trust, but also rate it against the All Ords Acumm Index where its outperformance has averaged 5.9%pa. More recent performance has been flat against AOAI due to rising AU$. So on that basis the high management fee is probably justifiable.

In regard to the performance fee of 20% of profits above the benchmark, this can be large but is pretty common for the industry. As mentioned before this is split 50:50 between the analyst and shareholders. I thought this was pretty generous for the analysts, but if you want good analysts, I suppose you have to pay – and it certainly motivates them to come up with the right selections.

I certainly believe that trusts that are index huggers should charge significantly less, as the index funds do, but if a trust can consistently add alpha you must be prepared to pay a premium. I am certainly not in favour of trailing fees and exorbitant entry and exit fees.

Regards

West Wind

Once again, thanks a lot for you comments West Wind, much appreciated. I might try to make it to the AGM next year.

Further to your comments re performance fees, I tried to track them but they are a bit of a black box. You need special software to keep tabs on it. HHL admin can see it every day but only release data on it 4-5 times a year. I think it should be released on a monthly basis with their monthly trust updates. The fees are payable every 6 months, provided the individual trust has exceeded the previous high water mark and made a profit in that 6 months. The performance fee is split 50:50 between the relevant HHL analyst and shareholders.

The format on AGM day was good with the AGM in the morning and an investment seminar in the afternoon. Questions were welcomed. There was an interesting discussion on the lack of direct investments in China, with HHL avoiding them because of concern on business ethics. Of the various company presentations made, I thought the Biota one was the most impressive.

Tried to get a commitment to more regular reporting of performance fee figure but only got a “we’ll look into it”. This is the main indicator of outperformance.