Fairbairn Capital | Old Mutual

Variable Asset Management Fees

Performance based Asset Management Fees charged on Old Mutual Funds.

The asset management fee on certain Life funds is derived from the performance of the fund relative to the target performance level, as we believe that this offers a number of potential benefits to investors:

• The interests of the investor and product provider are better aligned with performance based fees, since fees are lower when performance is poor and higher when performance is good.
• It provides an additional incentive for the fund manager to deliver, and maintain, better long-term performance.
• As with a flat (fixed) service fee, the variable management fee is reflected in a fund’s total expense ratio (TER). The TER will be lower if the fund performs below its benchmark and higher if it outperforms the benchmark.
• The benchmarks have been chosen to be consistent with published and publicly available indices.
• Fee hurdles have been chosen with reference to the benchmarks in such a way that a fund manager ¦is fairly rewarded for achieving various levels of performance.

Asset Management Fee Minimums, Maximums And Sharing

Minimum Fee

The minimum asset/fund management charge irrespective of fund performance.

Maximum Fee

The maximum asset/fund management charge irrespective of fund performance.

Hurdle Rate

The performance level at which the manager will start to charge more than the minimum fee.

The hurdle rate represents the fund’s outperformance of the benchmark required before a fee higher than the minimum asset management fee will be charged.

Maximum Fee Performance Level

The performance level at which the manager will start to charge the maximum fee.

Participation Rate

The fund manager’s share of the fund’s performance above the hurdle rate.

Example 1

For a participation rate of 15% and an initial fund value of R10 000:

If the fund grows to R11 000 over one year (performance of 10% p.a.) and the hurdle rate is 6%, then the fund manager has performed 4% above the hurdle rate. The fund’s performance above the hurdle rate is R400. The manager is entitled to a 15% participation in the R400. Hence the manager’s fee will be the minimum management fee plus 15% of R400 (i.e. minimum fee plus R60).

Life Funds: Asset Management Fee charging structure

* Benchmark is measured on a one-year rolling performance basis.

Explanation of above table of charges:

• When the fund performs below the Hurdle Rate, the Minimum Annual Fee is charged.
• When the fund performs between Hurdle Rate and the Maximum Fee Performance Rate, the fee charged is the sum of the minimum fee and the manager’s participation fee, i.e. Fee % = Minimum Fee % + Participation Rate* (Fund Performance % – Hurdle Rate %).
• When the fund performs above the Maximum Fee Performance Rate, the maximum annual fee is charged.
• Specific information and the risk rating of each fund is available on the relevant fund fact sheets. Details of past performance is provided on the fund fact sheets but these are not necessarily indicative of future performance.

Life Funds: Table of variable Asset Management Fees

* Benchmark is measured on a one-year rolling performance basis.