At Aurora, we charge no management fees. The only fees relate to performance.
We believe our fees are fair, transparent, and attractive for investors. Put simply, if we don’t perform well, then we don’t get paid.
First, we only start earning our performance fee once we have matched the return of the market.
If we underperform the market – defined as the FTSE All Share Index plus Dividends – then there is no performance fee to pay. For example, if the market was up by 6% in a year, and we returned 5% for the year, then we would have underperformed and so would charge no fees. That relative 1% difference would need to be recovered the following year.
Second, if we do outperform the market, then we charge our performance fee.
The fee is one-third of the excess returns that we make. For example, if the market was up by 6% in a year, and we returned 9% for the year, then we would have outperformed the market, delivering excess returns of 3%. In this case, our performance fee would be 1%, which is equal to one third of the 3% excess return that we delivered.
Third, our fees will be paid back if we don’t continue to perform.
Specifically, our fee is paid in Aurora shares, and the payment is restricted for a further 3 years. If during the following 3 years our outperformance has reversed then the fee would be clawed back.
For example, say we outperformed in year 1, and therefore earned a performance fee. But say we then went on to underperform during the following three years – between the start of year 2 and the end of year 4. Let’s also assume this underperformance wiped out our initial outperformance in year 1. In this scenario, the outperformance we were initially paid for delivering no longer exists after three years. As a result, we would lose our entire performance fee.
Fourth, our fees are capped.
This cap is set at one of two levels, depending on whether we have made money in absolute terms, or only performed well relative to the stock market.
Making money in absolute terms means that we have increased Aurora’s net asset value during the period. In this case, our performance fee will be capped at 4% of net assets.
There may also be times when we outperform a falling market. For example, the market may have fallen by 9%, while Aurora’s net asset value has fallen by 6%. Here, we have still outperformed, but we have not made money for our investors in absolute terms, because the net asset value has fallen. In this scenario, our performance fee will be capped at 2% of net assets. Fees in excess of the cap will be held back to be paid in future performance earning years.
We only earn fees if we perform well over time, beating the returns from the FTSE All Share Index plus Dividends.