Shock Absorber Fees
Fusion Asset Management’s Kirill Ilinski has developed a pioneering new performance fee structure, which accomplishes:
- Partial transferral of risk: investor has recourse to the manager’s accumulated fees
- Symmetric nature of the recourse: manager covers a larger percentage of the loss than he receives in gains
- Dynamic nature of the exposure: the amount of protected exposure is linked to the fees already accumulated
Investment products with SAFe demonstrate significantly improved statistical characteristics of returns, such as downside volatility, maximal drawdown and Sharpe Ratio. The structure is flexible and can be implemented on a fund or managed account level. It can be used against any benchmark or hurdle and can include tracker funds or absolute return funds.
Wide implementation of SAFe contributes to:
- Improving global financial stability by creating an incentive for responsible money management
- Providing protection for non-professional clients, directly or indirectly involved in financial markets, through the partial de-risking of investments
- Stimulating wider participation in the financial markets leading to increased growth
Shock Absorber Fees (SAFe) Presentation (pdf, 319)
"Responsible Compensation Structure: Shock Absorber Fees" Kirill Ilinski (March, 2010), Fusion Asset Management Working Paper No. FAM-02-10
“Just Rewards”: Article on innovative fee structures from Investment and Pensions Europe magazine (pdf, 1.6M)
UK Department of Trade and Industry Article on SAFe (pdf, 50k)
"Hedge Funds Begin to Restructure Fees", Financial Times (pdf, 45k)
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