Time To Disrupt Active Asset Management Industry, Says New Firm

Tom Burroughes

21 September 2018

Italy-based , the insurance and asset management group, has launched an investment firm to be led by industry luminary Peter Kraus that stresses how it charges “ETF-like fees”, a sign of how fees are under pressure across the sector.

Generali is pumping up to $4 billion into the business Aperture Investors, subject to shareholder approval. Embracing a “disruptive revenue model”, the firm is led by Peter Kraus, former chairman and chief executive of AllianceBernstein and global co-head of Goldman Sachs’ investment management division.

Aperture Investors will charge fees that only rise when managers beat their benchmarks. Similarly, managers are paid “modest base compensation” and can only earn more when they generate outperformance, the firms said, which they claim is a “major departure” from the traditional fixed-fee structure in which managers are compensated based on the volume of assets managed.

“Asset management is an industry long overdue for disruption. There are currently too many active managers managing too much money. Fixed fees and a lack of real capacity constraints have long incentivized managers to grow assets under management rather than pursue outperformance,” Peter Kraus, chairman and CEO, Aperture Investors, said.

“This structure has led to years of poor performance that has eroded client trust in active management. We intend to change this by aligning manager and client incentives around outperformance,” he continued. “We do this by charging fees that are similar to passive ETFs when performance is at or below a stated benchmark - and we only charge more when we generate outperformance. It’s our belief that investors would rather pay for performance than pay regardless of whether or not they get any, and the only way to do that is to disrupt the long-held model of fixed fees based on AUM in asset management,” he continued.

Generali explained that a deferral mechanism provides for unearned compensation to be returned to Aperture Investors’ clients ensuring that the profitability of the firm is dependent on whether or not its clients receive returns in excess of benchmarks over the long run.

“Peter Kraus has a 20-year history of successfully leading global financial organizations and the ability to inspire and attract talent eager to transform the business of asset management. The total AuM in the world amounts to well over $84 trillion, many active managers are underperforming and passive indexing is growing. With Aperture, we want to combine the interest for passive with the need for active,” Carlo Trabattoni, head of Generali Investments Partners, said.