If you were going to pay someone to invest your money and had agreed that you would pay them only a profit share arrangement how much of the profit would you be willing to share with them? Fifty-fifty perhaps?
Paying only when someone makes you money sounds like an attractive option, but Australian managed funds have traditionally always included a base management fee which you pay even when the fund loses money. New to the market in Australia are two managed funds in which you can profit share – you only pay a percentage fee when the fund makes you money and also outperformance its index. If that interests you then check out the Macquarie Incentives Funds.
The two managed funds over which Macquarie have applied this fee structure are not for the faint hearted. Don’t ever invest just for the fee structure – always ensure the fund investment profile is appropriate to you. (Disclaimer – this is not a recommendation to invest.)
So, back to my original question, how much would you split the profits if paying only for outperformance? In the case of the funds mentioned above Macquarie will keep 35% of the profits and you get to keep the other 65%.
Does that sound fair to you? Please let me know the profit share you think is “fair exchange” by leaving a comment below.