Wall St veteran starts mutual fund firm

NEW YORK: Peter Kraus, the Wall Street veteran who recently led AllianceBernstein Holding LP, is starting a mutual fund company and aims to shake up the industry’s traditional fee model.

Italian insurer Assicurazioni Generali SpA is backing Kraus’s firm and will contribute US$4 billion (RM16.5 billion) to Aperture Investors.

The firm will pay money managers based on fund performance rather than the volume of assets.

Customers will be charged low ETF-like fees until their fund outperforms its benchmark.

“Portfolio managers will say they all want to perform, but at the end of the day, if they don’t, they get paid basically the same as when they do perform. The motivation was to gather assets,” said Kraus on Thursday.

“Our revenue model shifts that and says you only get paid if you perform.”

Kraus was expanding on a development he started at AllianceBernstein, which last year won approval to introduce performance-based fees for United States mutual funds.

The new venture comes at a time when money managers are being pressured by low-cost ETFs and money flowing from acFidelity Investments this year introduced index mutual funds with zero fees, and the strategy attracted US$1 billion in its first month.

Kraus’s effort may face an uphill battle.

He thinks that his model will one day become the norm.