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Rating:Performance-Based Fees Bite a Texas Fund Firm Not Rated 4.0 Email Routing List Email & Route  Print Print
Friday, September 3, 2010

Performance-Based Fees Bite a Texas Fund Firm

News summary by MFWire's editors

In light of rough performance, Bridgeway Capital Management is actually paying the shareholders of one of its funds while charging another fund's shareholders nothing. Last Friday, August 27, the Houston-based mutual fund firm revealed in a filing it expects to charge negative 51 basis points to investors in the Bridgeway Aggressive Investors 1 Fund and zero basis points to investors in the Bridgeway Micro-Cap Limited Fund, thanks to "performance-based management fees that are a function of trailing five-year before-tax performance of each fund relative to its specific market benchmark."

Ryan Leggio covered the news yesterday in Morningstar's "Fund Times" article, praising "Bridgeway's commitment to pay the fees until performance improves." According to Morningstar, both funds are beating their benchmarks and peers "significantly" over the ten-year time horizon; yet Aggressive Investors 1 "ranked in the bottom 10 percent of its Morningstar mid-cap growth category" in 2008, 2009 and year-to-date 2010, while Micro-Cap limited "falls in the bottom one percent of domestic small-growth funds over the previous five years," Leggio writes.

He notes that Bridgeway has found itself in highly unusual situation. "It's a rare situation in the industry," Leggio writes. "The performance fees of most other funds that levy them are structured in a way that makes a negative or zero net expense ratio mathematically impossible."

Aggressive Investors 1 (which $99.63 million) is closed to new investors, while Micro-Cap Limited (which holds $21.81 million) is still open. And Leggio reports that the fund firm doesn't plan to shutter or merge either fund, despite the performance fee pain. 

Edited by: Neil Anderson, Managing Editor


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