The board of the Chrysalis investment trust slashed its performance fee from 20% to 12.5% this morning but that a fee is being charged at all is “still being greedy,” according to Ben Yearsley, director of Shore Financial Planning.
Jupiter Asset Management has waived its portion of the performance fee, with the remainder being paid directly to the management team in the form of shares, with 25% paid up front and 75% deferred for between three and five years.
It comes after the trust reported earnings of £112.1m through performance fees last year, which is charged to shareholders when a fund makes above average returns. It means, on average, investors paid more than 10% in charges for the year.
Yearsley said on Twitter: “After such an egregious fee paid last year surely the right thing to do was scrap it altogether. But no, they’re still being greedy. They had a good opportunity here after the dreadful look of last year’s pay-out to ditch it but as per usual missed a clear open goal.”
The trust, which is headed by Richard Watts and Nick Williamson, made 30.4% in 2021, beating the IT Growth Capital sector by 2.9 percentage points over the period after the fees were taken into account, as the below chart shows.
Total return of trust vs sector in 2021
Source: FE Analytics
Ryan Hughes, head of investor partnerships at AJ Bell, said it is “very hard to justify performance fees anymore”.
“We all know that fund managers are very well rewarded already regardless of performance,” he added. “There is no need for added payments on top.”
The trust’s high returns may have warranted performance fees in 2021, but Chrysalis is down 37.7% since the current managers took over in 2018.
Mark Dampier, former research director at Hargreaves Lansdown, said it was a “failure of the board” noting that “sometimes they [independent boards] don’t work”.
The new fee will only be charged if the trust beats its 8% annual target return, an unlikely eventuality in 2022 as the trust is currently down 73.3% since the start of the year and has underperformed the sector average by 21.2 percentage points.
Total return of trust vs sector in 2022
Source: FE Analytics
A Jupiter spokesperson said: “We are fully focused on improving returns for Chrysalis’ clients and removing Jupiter’s performance fee was the right thing to do, ensuring that our interests remain fully aligned.”
Earlier this week crystallised losses in makeup company Revolution Beauty. Likewise, its 6% exposure to Swedish fintech company, Klarna, has also come under scrutiny after reporting poor performance throughout 2022.
In its third quarter update, the company announced that operating results were down £8.3m throughout the year, with cashflows down £5.8m between January and September.