The $12bn San Diego County Employees Retirement Association (SDCERA) is overhauling its fee agreements by asking money managers to take only an index-level base fee when they fail to outperform the market, in exchange for higher upside when they beat the benchmark. For the most part, managers are willing to chase upside in exchange for sacrificing the safety of a flat-fee structure.

Although SDCERA has traditionally paid a flat-percentage fee to its external managers, CIO Stephen Sexauer has been working to move toward performance incentives since he took the position in the summer of 2015. With mounting industry-wide pressure on costs, and a major nationwide shift from active management to passive management, asset
managers are willing to be more open to non-traditional compensation structures.

“There’s just enormous pressure on management fees – people are using ETFs, they’re using index funds – so managers, to maintain their business, are now open-minded about performance fees,” Sexauer told MMR. “If you randomly called up 20 money managers, they’d all say the same thing. The industry is changing and changing rapidly.”

Read the full story: Money managers willing to play ball in SDCERA’s fee revamp

Published by Money Management Report/Pageant Media.