The launch of “early-bird” share classes by asset managers is no longer uncommon in Europe and Fitz Partners now tracks discounted seeding share classes in its Fund Charges databases.
According to Fitz Partners, 33% of asset managers in Europe offer lower fees on selections of share classes in a push to make investment into newly launched funds more attractive.
Early-bird discounts would often stop being offered after a pre-determined period or when the share class reaches a pre-determined asset size. The levels of discount offered are diverse but can be substantial, reaching 47% for equity funds according to Fitz Partners data. The median management fee for early-bird equity fund share classes sits at 0.50% when 0.95% would be the median management fee on a comparable universe of more mature equity funds. When considering fixed income funds, the rate of discount offered by early-bird share classes is slightly lower at 40%, the median early-bird management fee for bond funds is 0.36% against 0.60% for more mature funds.
“Incentives offered to first investors in new fund launches have always existed in various degrees but in the last few years we have seen a growth in the number of these early-bird share classes being launched. We have also seen a growth in the number of assets managers across Europe launching these seeding share classes with preferential fee levels. It is no surprise to see asset managers offering large discounts for seeding money or flows. It is an indication that in the case of new fund launches, pricing can make a difference and can compensate in some way for new funds’ lack of track record.”Hugues Gillibert, Chief Executive Officer of Fitz Partners