Schroders cuts performance fee on Buxton’s UK Growth trust

Schroders has dropped the performance fee on Richard Buxton's £228 million UK Growth investment trust to remove ‘a layer of unnecessary complexity,' while increasing the management charge.

The board of the trust said the performance fee, which was 10% capped at £500,000 on performance above the FTSE All Share plus 0.5%, has been terminated. The base management fee, however, has been boosted to 0.65% up from 0.40%.

The move to scrap the performance fee comes as the board said the structure adds complexity to the management charge arrangements and does not help to align the interests of the manager with those of the shareholders.

Schroders added Buxton has, up until now, received fees based on gross assets – before the deduction of borrowings.

However, the firm said it believes best practice in the industry is moving away from this. As a result, the basis on which the management fee is calculated has been changed, so they are not paid on assets which are financed by borrowings.

The trust’s board said the performance fee was originally implemented in 1999 due to a ‘long period of under-performance’, while the base fee charge of 0.40% was put in place in 2001.

After change in the trust’s strategy in 2006, the trust’s performance improved, prompting a review of the fee structure.

The move by Schroders follows comes amid similar fee restructures by fund managers, in attempt to simplify costs ahead of RDR. Legal & General last week announced it is launching a new share class for its multi-manager range, waiving the performance fee and adding a higher annual management charge.

Over the 12 months to the end of April, the total return on the trust’s net asset value was 17.1%, compared with the total return from the FTSE All Share index, of 13.7%, according to Morningstar.

The board said the net asset value’s outperformance of the benchmark and broader market came from the long-term successes of firms such as Burberry, Virgin Media, ICAP and Misys, as well as  the trust being geared through its bank facility.

The trust also benefited from not holding BP, despite being a large stock in the benchmark, as the share price has not fully recovered from the 2010 Gulf of Mexico spill.