Launching a new fund management (page 1 of 2)

Jonathan Compton, 49, a former senior executive at Credit Lyonnais Securities, is raising £3m through his own funds and private investors to finance Bedlam Asset Management. He plans to start three retail funds later this year, promising no gain, no fee and rebates for chronic underperformance.

Mr Compton, who has set up Bedlam with some former colleagues from broker Credit Lyonnais Securities Asia, says it is not his firm that is mad but much of the rest of the fund management industry.

The name apparently stems from a quotation from Mark Twain: "The way it is now, the asylums can hold the sane people, but if we tried to shut up the insane we should run out of building materials."

Inferring I suppose that the present fund management business is not just run by lunatics but by greedy lunatics
He believes the conventional fund management industry is an absurd rip-off and is paying himself the UK minimum wage of £4.10-an-hour to keep costs down. Although two other senior executives will each be paid a maximum of £65,000 until targets are met.

"Up until the mid 1980s there was a sense that fund managers were primarily focused on making their clients money. And then it started to go horribly wrong," he says.
"We believe that many of today's market practices are at best mildly and at times intensely hostile to the interests of those who place their money with professional managers."

Mr Compton points to what he calls the present market "absurdities" - high fees for poor performance, the dominance of fund managers who have grown too large to be effective investors and the spread of "closet" index tracking.
Bedlam, which has started its marketing campaign with the slogan "They are sucking you dry," is tiny compared with the industry giants, and has just eight staff in a modest office located above a sandwich shop in the City.
Bedlam's structure and operations will be different from the typical fund manager's. Its "no gain; no fee" structure has attracted the most attention.

Bedlam will charge a quarterly fee of up to 1.4 per cent. However, fees will be levied only once the fund delivers a 1.25 per cent gain in a quarter. Fees will be charged on a sliding scale to ensure investor returns do not fall below 1.25 per cent.

Mr Compton says that although it is not the ideal structure there are additional safeguards for client interests if high fees are earnt in a quarterly spike in a longer-term downward trend. Given the legal restrictions on performance-related fees on unit trusts and open-ended investment companies in the highly regulated UK market (oeics), He says it is the best possible solution at the moment. "All we are trying to do is align the rewards we get and what the clients get," he says.

The company has appointed four non-executives to its board, outnumbering the three executives, with the explicit remit to taper fees as far back as zero if investors are losing money over the long term, or if Bedlam "just performs badly".
This contrasts well in comparison to traditional fund managers which charge a host of hidden and explicit charges including entry and exit fees, wide bid-offer spreads and soft-commissions paid to brokers.

While it is the fee structure that has attracted most attention it is also investment style which Bedlam wishes to challenge. Mr Compton says Bedlam's investment style will be low-risk, but not in the conventional sense.