Peirce Says Regulatory Restraints on Performance Fees Worth Examining

In a speech that touched on a number of topics, SEC Commissioner Hester Peirce said the SEC should examine how advisers of actively managed mutual funds are able to be compensated.  She observed that the Investment Advisers Act generally prohibits mutual fund advisers from receiving performance fees although they may charge fulcrum fees – which are seeing a resurgence as asset managers grapple with fee compression and a trend toward passively managed products. “Allowing funds to experiment with performance fees may be one way to facilitate the continued availability of actively managed funds,” Peirce said. She noted the growth in assets of index funds and the fact that index funds can charge lower fees than actively managed fund advisers “who have to spend time researching and selecting investments for the funds they manage.”  She also observed that while the higher fees of active funds don’t always translate to  better performance, “some actively managed funds, however, do outperform their benchmarks.” Peirce urged more flexibility for actively managed funds in designing performance fees, explaining that the change would allow investors to continue to have actively managed funds as an option.