Smart beta provider ERI to abolish fixed management fees

Added 26th May 2016

In an unprecedented move, ERI Scientific Beta, a provider of smart beta indices that is an offshoot of the EDHEC Risk Institute in France, today announced it will offer its mandate clients the option to only pay performance fees.

Smart beta provider ERI to abolish fixed management fees

From the 1st of June, clients will get the option to pay zero fixed fees and a performance fee of 20% on all outperformance the EDHEC indices achieve compared to their cap-weighted counterparts. Though EDHEC predicted its move “will disrupt the traditional model of fixed fees on assets under management”, it expects existing mandate clients will not take up the offer.

“We will propose this new option to all our clients, but they have all had outperformance [over the past three years]. So they will probably not sign up for the zero fixed fees model and instead keep paying management fees,” said Noël Amenc, CEO of ERI Scientific Beta.

The new pricing model is targeted at attracting new clients instead, as ERI hopes the option of zero fixed fees will convince prospective clients to test the waters of smart beta. “Large numbers of asset owners stay out of smart beta because they think fees are too high for a product that is perceived as passive,” Amenc explained. Currently, ERI has some $10bn (€8.9bn) in assets 'under replication', as oit puts it.

The Frenchman nevertheless does not expect other smart beta providers to follow ERI’s lead. Its competitors tend to charge lower fees than ERI, but their smart beta ETFs don’t have the same track record of outperformance, he says. “They will go to the regulator and try to block this new fee structure, saying it will lead to more risk-taking in order to pocket a performance fee.” 

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Tjibbe Hoekstra

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Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.



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