Throughout Europe, the best performing private capital funds are those where managers are incentivised with lower management and higher performance related fees
This is according to Pan-European data analysts Preqin who have found that across different fund sizes, those in the top performance quartile consistently had lower than average management fees.
We are delighted to see this data – a fuller account can be found here in the Real Deal article. We believe this shows there is an alignment in the industry between what is good for the investor, i.e. low fees and transparent costs and what is also good for the manager – good performance.
At Kin we work with funds where the fees are weighted towards performance rather than annual fees. Whilst it is understandable there are higher fees in the EIS and VCT market (vs funds investing in listed equity) as creating a successful fund is hard work and expensive, we do not believe in ‘hidden’ charges such as those to portfolio companies. We feel there is no justifiable reason why they cannot be transparent about all the charges and even cap them.
The Preqin data compares favourably with the performance of our funds. For instance, Parkwalk’s EIS Fund has recently been rated the lowest cost on a wealth manager’s panel of over 10 EIS funds (mainly because Parkwalk do not charge extra monitoring fees to portfolio companies). A recent analysis by Tax Efficient Review also shows strong performance versus its peer group.
Furthermore, Pembroke VCT’s performance compares very well with peers of similar maturity (a total return of 124.5p since 2013) and has the lowest Total Expense Ratio of any generalist VCT; capped at 2% including all management and administration fees. This compares to an average of over 3% for most VCTs, with few capped charges. The manager of Pembroke VCT, Oakley Capital, has also said it ‘does not charge dealing and monitoring or additional fees to portfolio companies’. Other VCTs can ‘typically’ charge around 1.5% per annum in fees. Please note, past performance is not a reliable indicator of future results and may not be repeated.
Other funds such as Goldfinch SEIS Fund have also had a number of success stories in its portfolio. From our analysis of the SEIS fund market, Goldfinch’s fee structure is low cost compared to its competitors, with an AMC capped at 4 years and fund based performance fee; sadly rare in SEIS funds.
Venture Capital investing is hard work and it is not cheap to deploy capital. However where fund performance is concerned, the importance of transparency and alignment of interest is evident, showing clear success in the market where fee structures incentivise performance. We do not believe the excuse that generous tax breaks allow for large fees. Managers of private equity funds, (Venture Capital Trusts and SEIS / EIS Funds in particular) should look to further align their interests with investors to succeed.
Please note Kin is unable to give taxation or financial advice and strongly recommends private investors speak with a suitably qualified independent financial adviser. Your capital is at risk and all our products are long term, high risk investments. They will not be suitable for all investors. The level of tax relief received depends on individual circumstances and may be withdrawn at a later date.