That’s why we believe in performance-linked fees. All Aperture strategies utilize performance-linked fee structures. Each strategy charges a fee competitive with that of comparable passive ETFs if performance is at or below its stated benchmark. As outperformance is generated, each strategy is charged a performance-linked fee of 30% on returns generated in excess of that strategy’s stated benchmark, up to a cap.
For example, the average passive emerging markets bond ETF has an expense ratio of 0.45%.2 So we would charge a hypothetical emerging markets strategy a management fee of approximately 0.40% (TER of 0.50%), when it performs at or below its benchmark. We don’t think our clients should pay more than the price of passive unless they actually get more.
As outperformance is generated, the strategy is charged a performance-linked fee of 30% on returns generated in excess of the strategy’s stated benchmark, in this hypothetical case, the Bloomberg Barclays Emerging Markets USD Aggregate 1-5 Yr Total Return Index Unhedged (BEM5TRUU).3 However, the total fee for this fund is capped at 2.15%, where outperformance equals 5.5%.
1. SPIVA 2017 Year-End Scorecard, S&P Global.
2. Source: Morningstar Direct 6/19/18. Average calculated by Aperture of the 10 ETFs classified by Morningstar as “Emerging Markets Bond” that also describe themselves as predominantly passive, index-tracking products.
3. The Bloomberg Barclays Emerging Markets USD Aggregate 1-5 Yr Total Return Index Unhedged (BEM5TRUU) is a hard currency Emerging Markets debt benchmark that includes fixed and floating-rate US dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers. Country eligibility and classification as Emerging Markets is rules-based and reviewed annually using World Bank income group and International Monetary Fund country classifications.
Indices are unmanaged and do not include the effect of fees. One cannot invest directly in an index. Morningstar Category Average Fee is the Expense Ratio for funds in the Morningstar Emerging Markets Bond category as of 12/31/18.
Aperture is all about alignment, which is why the compensation of our portfolio managers and investment teams is also designed to put client results first, with an emphasis on consistent outperformance.
Aperture investment teams receive modest base salaries by industry standards.4
Aperture investment teams can earn up to 35% of Aperture’s performance-linked fee (30% of performance in excess of the benchmark), paid on generated outperformance, for a total of up to 10.5% of total performance-linked fees.
Deferral and Clawback
Aperture’s deferral and clawback structure is designed to incentivize long-term performance. 50% of the investment team’s performance compensation is deferred for 2 years from the end of the year in which it was earned, and at least 50% of that deferred compensation is invested in the team’s fund. After 2 years, the deferred performance compensation can only be paid in full if the cumulative return over the full 3 year period was equal to or greater than the return achieved in the first year. Deferred compensation is decreased pro-rata by any underperformance of that level. Unearned deferred compensation is returned to the fund over time.
4. We compared our typical portfolio manager and investment team professional’s base compensation to the salaries of people with the titles “Chief Investment Officer” and “Senior Portfolio Manager” respectively in the Greater New York City area using LinkedIn Salary as of 8/15/18.
Our clients keep their securities lending revenue.
We believe that the income we generate using our clients’ securities rightfully belongs to our clients. That’s why securities lending revenue stays within our strategies.