After posting record returns in 2020, the NZ Funds Core Growth Portfolio report has revealed a 24.41% performance fee charge.

“When you have extremely strong returns, fees will be your benchmark,” NZ Funds chief investment officer James Grigor says.

The 24.41% includes a management fee of 2.5%, 4.7% of “other” costs (including external manager performance fees), and 17% internal performance fees.

Grigor backs the fees saying that even though the numbers are high, NZ Funds clients are still getting good value.

“One way to look at it is value for money. If you think of 131% which includes a 24% fee, or for KiwiSaver it was 107% with a 4% fee.

“Now compare that to Simplicity who over the same period did 28% with a 40 basis point fee. The question is what is value for money?

“They actually both have merit, if you are looking for a low fee low return mandate and believe wholeheartedly in passive management then Simplicity is fit for purpose.

“Others may be willing to pay more to participate in the upside and if that upside occurs they will happily pay more for it.

“When it comes down to it, it is all in the individual’s definition of value for money.”

Grigor has an unlikely ally in his thinking with Simplicity founder Sam Stubbs.

“If people want to pay NZ Funds a 24% performance fee good luck to them, it is their money," says Stubbs.

“Do I think that the returns reflect on their skill or ability? No, I do not. The sort of returns that get a 24% performance fee is likely to be more like gambling than investment.”

Stubbs is referring to NZ Funds allocations to Bitcoin, which is partly behind generating high returns in 2020.

NZ Funds previously had 15% of total assets in the Core Growth Portfolio allocated to Bitcoin through investments in Galaxy Fund Management group. A further 9% is invested directly in Galaxy corporate shares.

As of last week, NZ Funds hedged their exposure to bitcoin and currently the portfolio holds zero percent.

Chris Douglas, principal at MyFiduciary, says while the NZ Funds fee is large, it is not unreasonable if it meets certain criteria.

“As a firm, we don’t have an issue with fees per se, we just think they need to be structured appropriately and have a fair benchmark, a hurdle above that benchmark, and a fair quantum. The NZ Funds fee is a big number, but I would hope it has met those requirements.”

Douglas is happy that under the new regime, the conversation surrounding fees is happening out in the open, rather than behind closed doors.

“What I love about the environment we are in now is that all of this has to be disclosed. NZ Funds has to front up to this and talk about why they deserve to receive this fee.”

According to Grigor the fund, like many other NZ Funds offerings, is designed for advisers.

“We have always been clear about who the portfolio is designed for, which is specifically advisers. Ninety-three percent of funds invested in our advised portfolio service are financially advised.

“On average, financial plans at NZ Funds hold 11.5% of core growth as a part of their total portfolio.”

Grigor says other than the high performance, what he is equally proud of is the way NZ Funds leveraged their portfolio when the going got tough.

“Leverage is not about trying to earn as much as you can, it is about what you do on the downside.

“When markets fell 24% and we were down only 11, that was using a form of leverage to reduce our exposure and make sure we had downside mitigation.

“I hope our clients are comfortable that not only are they getting the downside mitigation but they are also getting the upside.

“And the upside that has generated this performance fee is the core growth fund’s performance over and above the benchmark of global share markets.”