Invenomic and Boston Partners

LewisBraham

At the time when Boston Partners Long/Short closed to new investors in 2010 it had about $300 million in assets: https://sec.gov/Archives/edgar/data/831114/000095012310100719/g06730nvcsr.txt
So it's a little unsettling to read that the planned capacity for the newer Invenomic is $3 billion. Admittedly, this is Motamed's sole charge, and Boston Partners has multiple revenue streams from other funds, but technically each fund is supposed to be a separate investment company and the best interests of that particular fund's shareholders should be first. If you consider the management fee is 2.48% for Invenomic, about double that of a traditional active fund, and Boston Partners' fee is also very high, one might expect a much smaller capacity than $3 billion to stay nimble for shorting and small cap investing. I say this not because I dislike the fund's strategy or the manager but because I actually like them. Of course, Boston Partner's BPLEX is also now reopened to new investors and it has $247 million in it and a slightly higher 2.62% expense ratio. A 2.48% expense ratio on $3 billion in assets is $74 million in fees. It truly is an anomaly to see such high fees today. I hope they earn them.

Ted

@MFO Members: BPLEX expense ratio 3.26%
Regards,
Ted
https://www.boston-partners.com/funds/?ticker=BPLEX&culture=en-US&shareClassType=Investor

LewisBraham

@Ted It's complicated, but it really isn't 3.26% because of the costs of shorting which are counterbalanced by cash carry. I think a more accurate number is 2.75%, but Morningstar has 2.62%. Sans shorting, both fees are very high. I'm looking at Invenomic's fee sans short, it is around 2% but with a subsidy which is generally temporary. Sans subsidy, it's 2.17%. But let's say 2% for Invenomic to be fairer. 2% on $3 billion is still $60 million in fees a year for a boutique fund shop with only a few employees--11 on their web page: https://invenomic.com/our-team. Nice work if you can get it.

David_Snowball

When I've spoken with them about it, the Invenomic folk certainly seem sanguine about their fees, perhaps because they've been seeing strong inflows and rising interest among European investors. No evidence yet that the summer instilled any particular humility.

Morningstar says that fees for this sort of strategy are usually 1.7% (institutional) - 2.0% (long-short overall).

Fee waivers are rarely cancelled, but often have clawback provisions that allow a fund to continue charging higher-than-normal fees after its assets have grown; they get to keep overcharging on the large fund to make up for years of subsidizing the small fund.

For what that's worth,

David

msf

That 2.48% (or 2.17% after backing out shorting costs and fee waiver subsidy) is for the "super" institutional shares. The "regular" institutional shares cost 25 basis points more for "servicing".

What are institutional shares doing with a service fee? On top of that, the retail (investor) shares are load shares. That's because those shares are charged the same 0.25% line item service fee and then ladened with an additional 0.25% 12b-1 fee. That makes it a load fund (like class C shares). All this plus high management fees.

[SEC: under FINRA rules, a fund is permitted to ... call itself "no-load," unless the combined amount of the fund’s 12b-1 fees or separate shareholder service fees exceeds 0.25%."]

As the Professor said, this fund has the usual three year claw back provision: footnote 3 on p. 1 of the prospectus.