What we charge

What We Charge – Compounder Fund’s Fees

In the process of building Compounder Fund, we thought deeply about its fees. We wanted a fee structure that could do four things: (1) Keep costs as low as possible for Compounder Fund’s investors; (2) share the spoils with investors as the fund’s assets grow; (3) earn our keep only if the fund produces a decent return for investors; and (4) free us from worry about keeping the lights on during the inevitable lean times. The last point is important because we are in this for the long haul. We think Compounder Fund has the potential to be an incredibly meaningful project for investors in Singapore. So we want to give Compounder Fund the highest possible chance to survive during temporary market downturns while still fulfilling the first three points.

We came up with the following.

Compounder Fund has two share classes: Class A and Class B. Class A is open only to early investors of the fund. Here’s how the fee structure for the two share classes look like.

Class A Class B
AUM of Compounder Fund (in S$, million) Management Fee Performance Fee (with high watermark) Management Fee Performance Fee (with high watermark)
0 – 49.99 1% 10-over-6 1% 10-over-6
50 – 99.99 0.8% 10-over-6 0.8% 10-over-6
100 – 149.99 0.2% 6-over-6 0.6% 10-over-6
150 – 199.99 0.2% 6-over-6 0.4% 10-over-6
200 0.0% 6-over-6 0.2% 8-over-6

The management fee for both Class A and Class B will decline as Compounder Fund’s AUM increases – this is part of how we share the spoils. Moreover, the management fee falls to a low level very quickly – this is because we want the management fee to merely be something to keep the lights on. It’s inevitable that Compounder Fund’s portfolio will occasionally fall in value. When this happens, there will be no performance fee. If Compounder Fund has no management fee, there will be no revenue for our business. In such a situation, we will be placed under unnecessary stress that could affect our decision-making when investing Compounder Fund’s capital. We want to avoid such a situation.

Where we want to truly earn our keep is from the performance fee. The performance fee for both Class A and Class B is given as “X-over-6” and involves a highwater mark. Let’s break it down:

  • What “X-over-6” means: The performance fee is X% of the excess return over a 6% compounded hurdle rate. The X% will fall as Compounder Fund’s AUM grows. This is in line with our desire to lower costs for investors and to share the spoils.
  • What the 6% compounded hurdle rate means: Whenever someone invests in Compounder Fund, imagine that there is a 6%-compounded-hurdle line that is drawn. The value of Compounder Fund has to exceed the line in order for us, as the fund manager, to earn a performance fee.
  • What the high watermark means: Each time Compounder Fund’s value hits a new peak, a new 6%-compounded-hurdle line will be drawn.

The structure for the performance fee sounds complex. But the intention is simple: We want to align our long-term incentives with Compounder Fund’s investors in a way where we can earn a performance fee over the long run only if Compounder Fund’s investors can earn an annual return of at least 6% over the same time period.

We’re also not charging any subscription fee for investors who subscribe to Compounder Fund. There’s no redemption fee too, apart from the early-withdrawal penalty. Compounder Fund is an investment vehicle to grow your wealth – having as little fees as possible brings us closer to achieving this. And speaking of the early-withdrawal penalty (3% of the withdrawn capital in the first year, 2% in the second year, and 1% in the third year), we’re implementing the penalty to guide investors in Compounder Fund toward good investing behaviour. As an investor in Compounder Fund, we want you to stay for the long run, because that gives you the best chance to earn good returns.

If and when Compounder Fund’s AUM grows beyond S$200 million, we will endeavour to lower fees for investors as and when the opportunities arise.