UK - Hermes is to expand a new performance fee structure - announced for its funds of hedge funds in September - across its range of institutional products.
The fund management business - owned by the BT Pension Fund - said it is applying a three-year incentive fee structure to portfolios at its various boutiques.
These will include its fund of private equity funds and the single portfolio products it has in real estate, global and European equities, credit, emerging markets and commodities.
Investors will not be compelled to accept the new model. However, appetite for greater alignment between investors and their managers, including making the manager perform for longer, suggests take-up could be widespread.
Hermes said its new structure "seeks to avoid the situation with one-year performance fees, which can encourage fund managers to take undue risk."
Two variants of Hermes' new fee structure will be available. The first option involves Hermes charging the incentive fee on a pure rolling three-year basis. The second involves the relevant fund collecting the fee each year - as in the past - but placing it in an escrow account, releasing it to Hermes over three years only if the manager hits performance targets in each year.
Hermes says: "If we do not achieve targets in any of these periods, [we] do not draw down that period's money."
If the investor redeems during the period, investors get back money for non-performing years.
This comes as Hermes launched a global credit asset management boutique with an initial £400m (US$627m) investment from the BT Pension Scheme earlier this week.
The boutique - a partnership with John Lupton and Cian O'Carroll - hopes to attract third party clients as well at working for BTPS.
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