ABERDEEN Asset Management Asia Limited said on Tuesday that from Oct 1, 2015, it is subsidising operating expenses to the tune of S$2-3 million a year on all its local unit trusts ahead of the CPF board's revised expense caps on CPFIS-included funds.
The caps will come into force on Jan 1, 2016 and will see the maximum permissible total expense ratio (TER) on higher risk equity funds reduced to 1.75 per cent from 1.95 per cent. The 20 basis points difference is the amount Aberdeen is now absorbing.
"The CPF board has signalled its belief that high manager fees are an obstacle to good fund performance over the long term. It has a valid point,'' said Nicholas Hadow, Director of Business Development at Aberdeen, one of the largest manager of CPFIS-included funds by number in Singapore.
"After it announced its TER cap reductions, we considered the cleanest and fairest response was to trim charges across all our funds. This could cost us S$2-3 million a year but market sentiment is weak and it's important we identify with our investors. With luck this will help us attract new flows once markets do recover."
The alternatives are to leave fees as they are and let CPF qualification lapse automatically; to try to lower such costs by eliminating feeder fund structures (which are common where the Singapore-domiciled fund feeds into an offshore fund); or to set up separate CPF and cash share classes.
The company considered the separate share class route as the most feasible alternative but rejected this since it would mean cash investors would be at a disadvantage to CPF investors.
The CPFIS-included funds are classified into four risk categories: Higher Risk; Medium-to-High Risk; Low-to-Medium Risk and Lower Risk. It has mandated fee cuts of 20 basis points for each category save for Lower Risk products where the cut is 30 basis points (to 35 basis points).