Is your manager worth the money?
By
Charlie Corbett
Mon 02 Apr 2007
Private equity is all anyone in Australia's investment community seems to talk about these days, and with good reason.
Private equity is all anyone in Australia's investment community seems to talk about these days, and with good reason. A staggering $19.5 billion worth of deals were announced in 2006, as compared to just $1.5 billion in 2005. Admittedly the Qantas deal takes up $11 billion worth of the 2006 statistic, but that deal in itself is a reflection of quite how large private equity transactions have got these days. It was still hanging in the balance when Investor Weekly went to press.
Rather than go over the hackneyed concerns about higher asset price multiples and mega debt packages that private equity partnerships are accruing, this week's cover story examines the fees superannuation funds are paying.
Some in the market have suggested that the 2 per cent base fee many of the larger funds are charging investors these days is simply out of proportion. They argue that a 2 per cent fee was fair when most private equity houses had mandates of a few hundred million, but when a fund has several billion under management managers are earning too much.
In many ways this can be a disincentive, they argue, since managers are earning millions of dollars whether or not the fund succeeds. The alignment of interest between manager and investor breaks down. This is an argument that will run and run. Private equity managers will rightly argue that the spectacular returns of the past five years are proof they are worth the money and investors simply would not pay if they didn't want to.
It's a free market after all, and if returns start to fall then investors I am sure will make up their own mind whether to pay such high fees.
The feature this week concerns Australia's asset consultancy industry. The explosion in superannuation fund sizes combined with a rapidly shrinking market place means that consultants are being forced to adapt. Internal investment teams at many of the leading super funds are not only threatening business, but they are creating a war for talent in the industry as a whole. James Dunn explores what asset consultants are doing to evolve in this changed corporate environment.
I would also draw your attention to our newly created international news section. We at Investor Weekly felt that there was not enough coverage in this industry that concerned development and innovation in overseas pension funds. It is crucial that Australia's booming superannuation industry learns from the successes and mistakes of its peers abroad.
As always, if you have any news or views to share with us please don't hesitate to get in touch with us at Investor Weekly.
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