Exiting JP Morgan global head of fixed income David Saab (pictured) has criticised the industry’s focus on asset gathering as he joins industry legend Peter Kraus at a brand-new firm planning to disrupt the active management market by undercutting rivals on fees.
The venture, called Aperture Investors, was launched on Thursday. It is the brainchild of ex-Alliance Bernstein CEO Kraus and Italian insurance business Generali who supplied the stalwart with $4bn to get his firm off the ground.
Kraus will be CEO and chairman of the new company, which will be headquartered in New York.
Putting clients above asset gathering
Saab will be stepping in to oversee the firm’s international business as managing director this November. He was the global head of fixed income and absolute return funds at JPM Private Bank and before that was a portfolio manager at Banque Privee Edmond de Rothschild.
He will be based in London.
Speaking to Portfolio Adviser Saab said he was attracted to Aperture because of the emphasis placed on aligning client interest with the goals of the firm.
“I realised that the asset management industry today is more interested in asset gathering than in trying to find what is suitable for the client and make an alignment between their interests and what the firm is doing.”
ETF-like fees for active management
Saab said Aperture’s fee structure is a unique proposition particularly in the US market.
Strategies will charge “ETF-like fees” which can which can only go higher when managers beat their benchmarks. As outperformance is generated each strategy is charged a performance-linked fee of 30% on returns generated.
In another departure from a fixed-fee structure, managers will be paid a “modest base compensation” and can only earn more when they generate outperformance. Active managers’ compensation is typically proportional to the volume of assets they managed.
Managers and their investment teams are entitled to 35% of the firm’s performance-linked fees paid on realised outperformance or 10.5% of total outperformance.
Funds will also have a clawback mechanism to ensure that the firm’s profitability is dependent on whether clients receive returns in excess of the benchmark over the long-run. In other words, if a manager generates alpha in the first year and negative alpha over the next two to three years, the money they were supposed to receive as part of the first year performance will go back into the fund.
Asset managers overdue for disruption
Kraus said the asset management industry is “long overdue for disruption” arguing that fixed fees have led to years of poor performance and eroded client trust in active management.
“There are currently too many active managers managing too much money. Fixed fees and a lack of real capacity constraints have long incentivized managers to grow assets under management rather than pursue outperformance.”
Kraus was responsible for pushing performance-linked funds at Alliance Bernstein.
He was ousted after nearly a decade at the firm in April 2017 by parent company French insurer Axa who reportedly disagreed with his management style and succession plans. Before that he had built a name for himself during his 22-year career at Goldman Sachs where he eventually became global co-head of the group’s investment management arm.
