The famous Frontier/JANA fees paper revisited


Almost 10 years ago, two arch competitors in Australia’s asset consulting space – Fiona Trafford-Walker and Ken Marshman – came together in a spirit of co-operation to present the super industry with a suggested alternative remuneration system for their fund managers. Fiona has now revitalised that dream.

In what is probably her last research note for Frontier Advisors clients, many of whom she has worked with for much of the past 25 years, Fiona has revisited, again, the famous collaborative paper. That is not a tautology. Fiona said, some years ago, that she would continue to “bang on” about this paper and its fundamental suggestions as long as people were prepared to listen. “Or even if they weren’t”, she said.

(As previously reported, Fiona Trafford-Walker is retiring from Frontier Advisors in early December to concentrate on several non-executive director roles.)

She was, at the time – 10 years ago – the chief executive of Frontier. She went on to concentrate on heading up the investments for Frontier clients and remain its most influential advisor. Ken Marshman, at the time, was the chief executive of JANA Investment Advisers, and a shareholder in the firm prior to it being bought by NAB. He went on to chair the organisation as well as, more recently, chair the trustee board of one of its most important clients, REST, a position he retired from this year. His former boss, John Nolan, remains on the REST investment committee while his long-time colleague, JANA senior advisor John Coombe, returned to the JANA board as an executive director.

In her latest research note, Fiona spells out the catalyst for her thoughts – back during the global financial crisis – and why she reached out to Ken Marshman to consider joining her in her search for a better system of funds management remuneration. Frontier and JANA are not the only ones to have done this. Willis Towers Watson’s ‘Thinking Ahead Group’ in London has also gone down a similar-but different path to attempt to change the funds management world. No-one has, as yet, quite cracked it.

The Trafford-Walker and Marshman original joint paper didn’t gain much traction. Managers, for various reasons, were unimpressed. You’d have to think, they were mainly unimpressed because they were going to lose revenue. Client super funds, it should to be suggested too, were perhaps not brave enough to have their way, or were too nervous about losing alpha-producing managers. This was even though Fiona and Ken were in charge of the two largest asset consulting firms in the country, by a country mile. In a nutshell, the paper suggested a flat fee to cover overheads and then a performance fee to incentivise the firm and their portfolio managers.

In the recent update of the original paper, Trafford-Walker goes through all the remuneration options for the relationship between big institutional investors and their external fund managers. They represent a text-book case of how big super funds should be approaching the costs’ side of their investment management options – both for external and internal management. The catalyst, which prompted her to reach out to Marshman, was a visit from a fund manager to explain that, because of the global financial crisis, the firm had to let go a number of staff. The manager said this should be ‘OK’ because the staff were not involved in the investment process.

This gave Fiona pause to think: “How terrible it would be for those people, and the thousands of others across many industries and countries that lost their jobs (and in some cases more than just their jobs) both during and after that time. But my second thought was, then, why were our clients paying for them to be employed in the first place? It was this latter thought that led to a conversation with Ken Marshman, then my counterpart at JANA, about incentive and remuneration models in funds management and why they didn’t work that well.”

In November 2010, Frontier and JANA released a joint paper entitled ‘Principles for the Establishment of Fees’. (The original paper is also available through the link produced above, as ‘Attachment 1’).

– G.B.