NZ Funds notched up a more than 24 per cent annual charge for one of its products over the 12 months to March 31 as bitcoin-related investments triggered performance fees of over 17 per cent.
According to the latest NZ Funds Core Growth Portfolio report, the 24.41 per cent annual charges covered the standard management fee of 2.5 per cent, about 4.7 per cent of ‘other’ costs (including external manager performance fees) and 17 per cent attributed to in-house performance fees.
The March quarter report shows the fund, part of the manager’s ‘Advised Portfolio Service’ series, totaled almost $220 million at the end of the period, up from just above $94 million 12 months previously. Based on average $156 million fund size over the year, the Core Growth Portfolio would’ve accrued total fees of about $38 million, of which roughly $26 million came via performance fees.
While the Core Growth Portfolio does not charge performance fees directly, NZ Funds is entitled to pick up the bonus payments on an underlying wholesale vehicle – the Private Global Macro Trust.
The Core Growth Portfolio returned almost 131 per cent (after fees but before tax) over the 12 months to March 31, about double the benchmark MSCI All Countries World Daily TR Net Local Currency performance for the same period.
For the 10 years ending March 31, the NZ Funds product was just under par, returning an annualised 10 per cent after fees and tax – roughly 0.3 per cent below the benchmark.
Since inception in 2008 to the end of 2020, the Core Growth Portfolio returned a yearly 8.2 per cent after fees and tax compared to 10.1 per cent for the pure index performance.
Over the last year, NZ Funds, headed by Michael Lang, laid a lucrative bet on bitcoin, mostly through holdings in an institutional strategy managed by Cayman Islands-domiciled Galaxy Fund Management group.
The Core Growth Portfolio quarterly report shows the fund allocated about 15 per cent of total assets to the Galaxy Institutional Bitcoin Fund with a further 9 per cent invested directly in Galaxy corporate shares.
A notoriously volatile asset, bitcoin experienced a stellar year post the March 2020 COVID crash during a period where global equities in general surged about 50 per cent from the pandemic low point.
NZ Funds accrued performance fees in most of the other eight Advised Portfolio Service strategies over the 12-month period, notably in the Global Equity Growth fund, which reported headline costs of 13.6 per cent with about 9 per cent in performance fees. The Global Equity Growth Portfolio returned over 93 per cent during the year against the benchmark 51 per cent, again with a large weighting to crypto-currency.
Last month the Financial Markets Authority (FMA) warned off managers from advertising ‘phenomenal’ investment returns accrued during the statistically unusual 12 months ending March 31. Following the FMA broadside, NZ Funds swapped the headline figure in its KiwiSaver growth option display ads from the one-year performance of 107 per cent to an annualised return of just over 25 per cent for the three years ending March 31.
In April the FMA also issued new guidance on fees and ‘value for money’, putting extra obligations on KiwiSaver providers and fund managers to justify how they charge investors.
The NZ Funds Private Global Macro Trust takes a 15 per cent performance fee on returns above a hurdle rate “and subject to the high-water mark being exceeded”.
Fund documents define the high-water mark as “the unit price of the wholesale trust the last time a performance fee was paid (or in the case of the first performance fee, the unit price on the date the performance fee came into effect)”.
“All performance fees are calculated and accrued daily, and subject to the high-water mark being exceeded… are payable on or after 31 March each year,” the NZ Funds disclosure material says. “There is no maximum limit on any performance fee.”