Hedge-fund style fees for mutual funds face crackdown in Europe

As the war over fees rages in the asset management industry, European mutual funds have managed to retain a lucrative perk with their ability to mimic hedge funds’ fees. Now, regulators are clamping down.

Photo: Deutsche Bank/PR

Once the preserve of their more aggressive peers, many of the region’s mutual funds are charging investors if they beat their benchmarks -- often on top of a management cost. Some 5,000 funds holding almost EUR 1.3trn of assets are doing so, with the average levy currently about 15 percent, according to Morningstar Inc. data.

At a time when asset managers are fighting for fees amid an investor exodus, European Union regulators want the charges to sink even further. An industry consultation that ended Oct. 31 addressed concerns that clients are facing steep costs from managers who pick convenient benchmarks that flatter their returns, along with inadequate disclosure.

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