One example of this, cited by Milton, is the Chrysalis investment trust, which paid out a performance fee, split between the fund management company and the individual managers, of £112mn just as a period of sharp underperformance took hold.
The board of that trust subsequently confirmed it had altered the performance fee structure.
The trade body for the investment trust industry, the Association of Investment Companies, has a governance code which it believes investment trust providers should adhere to, which includes a range of criteria.
Nick Britton, head of intermediary communications at the AIC, said: “Performance fees are intended to align the manager’s interest with investors, so that an element of the manager’s compensation depends on achieving returns above a stated target.
"However, they clearly divide opinion and investors should make sure they’re happy with how performance fees are structured before they invest.
“For investment companies that invest in mainstream quoted equities, there has been a move away from performance fees in recent years, though they are still the norm in some more specialist sectors.
"Investment companies have independent boards of directors whose job it is to negotiate fees with the manager on shareholders’ behalf. In recent years we have seen a lot of fee changes that benefit shareholders – for example there were 27 such changes last year.”
The Allianz Technology trust’s share price has fallen by around a third in the past year, and is up 74 per cent on a five year view.
Andrew Latto, an analyst at Fund Hunter said: ""What is the point of paying a fee for outperformance in year one when it disappears in the two years that follow? A fee is paid for something that vanishes."
david.thorpe@ft.com
