Milford Asset Management is rejigging its KiwiSaver fund performance fees in line with changes flagged earlier for the group’s range of unit trusts.
In a letter sent to Milford KiwiSaver members last week, the manager said it had “enhanced the high watermark methodology and performance losses incurred will be brought forward into subsequent performance periods”.
Under the most recent Milford KiwiSaver prospectus, dated June 18 this year: “No losses are carried forward into the next performance period.”
The amendments, due to take effect on September 1, means Milford will have to deduct any losses from a previous period (typically annual) before applying a performance fee calculation in any future period where it has met its outperformance benchmarks.
While the above change only directly applies to the KiwiSaver Active Growth option, the Balanced Fund would also benefit from impending fee modifications to the underlying Milford products it invests into.
In addition to increasing the hurdle rate on its Income Fund (to be renamed the Diversified Income Fund) from cash to cash plus 2.5 per cent, Milford said it would apply similar changes to the high water mark calculations for the fund along with the Dynamic, Trans-Tasman, Global and Active Growth products.
Anthony Quirk, Milford managing director, said the firm began reviewing its performance fee methodology “some time ago”.
“We set our original methodology in 2007 when the Trans-Tasman (then called Peak) and Active Growth (then called Aggressive) Funds launched,” Quirk said.
“Over time markets, methodologies, capabilities and best practice have evolved.
“There is no ‘standard’ way to run this type of methodology and it is very complex. It has taken a lot of investigation and modeling for us to reach the new methodology outcome.”
He said Milford had also removed the ‘high water mark’ reset option in its unit trusts.
“Although we have never [reset the high water mark], we have removed the provision entirely to provide further comfort to our investors,” Quirk said.
In its letter to KiwiSaver members, Milford says from September 1 it will also change the asset mix in its conservative fund to “hold less shares and more fixed income products (such as bonds) and cash as previously”.
“In recognition of the lower risk asset allocation from 1 September the fund will be lowering the capped management fee from 1.05% to 0.95% per annum and will continue to have no performance fee,” the letter says.
David Lewis, Milford fixed income specialist, will take over as lead portfolio manager for the conservative fund as at September 1, with current manager, Jonathan Windust, moving to a support role in the product.
Milford will also launch a conservative fund outside of KiwiSaver in September, with a base fee of 0.95 per cent. The new fund will be able to invest up to 100 per cent in investment grade bonds, with an expected average exposure of 70 per cent. As well, the Milford conservative fund could take a maximum exposure of 20 per cent to shares and 25 per cent to high yield bonds.
Like its KiwiSaver cousin, the Milford conservative unit trust will not accrue a performance fee.