With all that money going into passive funds, how do you prop up your active managers? At Allianz Global Investors, they’re trying sneakers.
Senior executives at the asset management unit of German insurer Allianz SE are touring the firm’s 14 offices globally, handing out white running shoes. The campaign is part of a marketing and branding effort by the 513 billion-euro ($595 billion) firm to emphasize its role as active asset manager, at a time when few investors believe stock pickers are worth the extra fees over low-cost index funds.
AGI is so confident that it can offer additional value that the firm recently slashed the management fee on some funds in return for a performance fee that will only kick in if the fund beats its benchmark.
“Sneakers are just part of this brand relaunch,” said Andreas Utermann, AGI’s chief executive officer. “It’s not just the investment process that’s active, it’s the whole ethos of the firm and the way that we give advice -- hopefully a bit more counter-cyclically than in the past.”
Active managers in general have lost market share to passive index trackers, particularly in equities, because they haven’t been able to show they can beat the market after taking into account the impact of fees. At AGI, 70 percent of third-party assets -- money overseen for clients other than Allianz -- performed better than their benchmark in the three years through March. That number drops to 37 percent when taking into account the fees clients have to pay.
Looking at the number of funds, rather than assets, 40 percent beat their benchmark after fees, according to figures compiled by Morningstar Inc.
Adding performance fees while cutting the management fee -- which investors pay no matter how well or poorly a fund performs -- links the fees a fund company earns more closely to how well it does for its clients. Traditionally, hedge funds have charged performance fees, though most also charge a fairly high management fee of around 2 percent.
Charging mainly for value added on top of the market is a way to lure back clients who might be tempted to invest in cheaper ETFs, Utermann says. The firm’s vehicles offer a low fixed fee of 20 basis points and an additional 20 percent performance fee if a fund outperforms its benchmark.
‘Good Deal’
“We still need to overcome a natural reluctance that people have” against performance fees, said Utermann. “You get it pretty much for the price of an ETF and you only pay if we perform. Why wouldn’t that be a good deal?”
AGI’s attempts to ramp up sales of its active products comes after Utermann previously described smart-beta strategies -- quantitative models that attempt to deliver market-beating returns for the sort of fees usually charged for passive funds -- as neither smart nor beta.