Burdett also pointed to the alignment of interests issue that McDermott highlighted.
“When we are looking at funds, co-investment from the managers is a key factor and the whole industry is being pushed towards this type of link anyway so any analysis of the bonus culture should take account of deferral rules and whether deferred bonuses are held in the fund managed by the investor,” he said.
“Neil is a very interesting character and businessman, and as has been read today, he and Craig spent a lot of time looking at a good number of incentive packages from a number of sources to arrive at the decision they did,” added Wellian Investment Solutions CIO Richard Philbin. “True, the industry has a long-held pay structure which includes bonuses, but this move today doesn’t necessarily mean all will follow suit. Bonuses have typically been used as a balancing act for companies when times are good – if the company is successful, its employees are too – the bonus acting as a variable measure.”
A nod to the unusual nature of Woodford IM among asset managers was also forthcoming from Philbin.
“Personally I don’t think this is an issue for Woodford IM because the front office is limited and massively directed and dictated by Neil,” he said. “You have to remember he is incredibly wealthy and owns a very large percentage of the business which no doubt paid him not only a healthy pay cheque, but also a nice dividend last year as the company made more than £10m profit in its first year. This might be different if somebody was in a different stage of their professional career and potential earnings profile.”
“This could be different in another firm though, Philbin continued. “From a perspective of ‘is this good for investors or not’ it depends on whether these changing costs are charged by the fund or the trust. “If ultimately it means a cost saving at WIM level of let’s say 5bp, it’s fairly safe to say the 5bp saved will not be used to reduce AMCs or OCFs for example.”
So, while the jury is out in terms of whether the end investor will truly benefit from the changes at Woodford IM, the verdict is in on whether UK asset managers have fresh questions to answer on their remuneration policies.
