I obtained the marketing brochure for the AIB Alpha Japan Fund whose objective is to invest in Japanese property. I was surprised by the high fixed charges and wondered what others thought?
The fund aims to raise equity of €40m and borrow a further €160m. The life of the fund is expected to be 8 years. Fixed charges over the life of the fund regardless of investment performance is:
Initial commission (of 2% of €40m) €0.8m
Acquisition fee of 0.5% for each investment* €1.0m
Investment management fee of 0.5% pa of gross assets for 8 years* €8.0m
Corporate advisory fee of 0.5% pa of gross assets for 8 years* €8.0m
Total €17.8m
As a % of the equity investment 45%
*Value of investments made / gross assets is assumed to be €200m
The Fund will also bear the normal expenses such as tax / legal / directors / audit expenses etc
Based on the above, AIB and the investment advisor will receive almost half of the equity investment by way of fees regardless of how the fund performs. If the fund actually does perform well then the investment manager will be entitled to a further performance fee. This fee rate is not specified in the brochure though I expect it will be 20% of profit. I don't mind paying a performance fee but I can't justify paying half of my equity investment in fees without there being a requirement for the fund to produce a profit.
The fund aims to raise equity of €40m and borrow a further €160m. The life of the fund is expected to be 8 years. Fixed charges over the life of the fund regardless of investment performance is:
Initial commission (of 2% of €40m) €0.8m
Acquisition fee of 0.5% for each investment* €1.0m
Investment management fee of 0.5% pa of gross assets for 8 years* €8.0m
Corporate advisory fee of 0.5% pa of gross assets for 8 years* €8.0m
Total €17.8m
As a % of the equity investment 45%
*Value of investments made / gross assets is assumed to be €200m
The Fund will also bear the normal expenses such as tax / legal / directors / audit expenses etc
Based on the above, AIB and the investment advisor will receive almost half of the equity investment by way of fees regardless of how the fund performs. If the fund actually does perform well then the investment manager will be entitled to a further performance fee. This fee rate is not specified in the brochure though I expect it will be 20% of profit. I don't mind paying a performance fee but I can't justify paying half of my equity investment in fees without there being a requirement for the fund to produce a profit.