US fund reveals manager fees

A US public pension fund for the state of Rhode Island has set the precedent of publicly disclosing all of its manager fees.

In a report for the fiscal year 2016, the Employees’ Retirement System of Rhode Island (ERSRI) analyses all of its manager expenses. In total, it paid almost $70 million in fees, at an effective expense ratio of 0.9% across its portfolio. The ratio was skewed by high fees to hedge funds, with fee structures of 1.5% to 2.5% annual management fee and a performance fee of 1.5% to 25%. The most expensive hedge fund used, an absolute return fund with DE Shaw, charged 2.5% annual and 25% performance on assets of $92 million, equating to $2.5 million in fees. At the other extreme, index-tracker SSGA had a fee of 0.03% for a $3.2 billion mandate, giving a fund expense of $350,000.

In a covering note on the report, the Office of the General Treasurer for the fund said: “Rhode Island has enacted a first-of-its-kind policy to invest only with fund managers that agree to full reporting of their performance, fees, expenses and liquidity. All funds new to the ERSRI portfolio after June of 2015 are required to permit public reporting of their fees and expenses.” The fund’s manager also announced a new asset allocation strategy which will reduce the allocation to hedge funds, which it said should improve performance and reduce fees paid to managers.

The report also includes details of the fund’s private equity and real estate manager line-ups. The only manager fees not shown are those where the investor-manager agreement predates the decision to disclose fees. Asset managers in the UK could come under more pressure over their fee structures following a report by the Financial Conduct Authority which found high profit margins and a lack of fee competition at asset managers.