The fee structure of Forager International Shares Fund changes on 1 July 2019. Base fees will be lower and a performance fee introduced.

FEE CHANGES - OFFICIAL LETTER

Why are we introducing a performance fee?

It will allow for a 0.15% reduction in the ongoing base fee for the fund.

The reduction in the base fee flows immediately back to investors in the form of lower fund expenses.

It will further align investor outcomes with the Forager investment team.

In aggregate, Forager staff and shareholders continue to be the largest investor in the Forager International Shares Fund. When Forager first launched the Fund, all key individuals involved in the management of the Fund also had equity investments in the Forager management company, creating strong alignment without the need for a performance fee.

While that alignment still exists for Steve and Gareth, the Forager business has matured and the team has grown. A performance fee allows us to establish a clear link between Fund performance and individual contribution for those newer team members with less or no equity in the management company.

It will assist Forager to attract and retain the investment team it requires

We have recruited two additional senior resources this year, which will add important geographic and subject matter specialist knowledge. Our ability to do this is in large part is only possible where there is capacity to reward individuals for outstanding contributions to fund performance. As a small business, a performance fee is central to our ability to do this.

Notable features of the performance fee

The fee

The Performance Fee is 12.53% of the amount by which the fund outperforms the benchmark, which is the MSCI ACWI IMI (Net)(AUD) or Benchmark.

Catch-up is required after periods of underperformance

The fee is designed such that any period of underperformance against the benchmark, from after it is introduced on 1 July 2019, will need to be made up before any performance fee is payable to Forager. Fund underperformance relative to the benchmark prior to 1 July 2019 will not need to be made up.

When fund performance is negative, but where there is outperformance relative to the Benchmark

In periods where fund performance has been negative, but where there has been outperformance relative to the Benchmark, performance fees will be provisioned, but not paid to Forager at that time. For example, if the Benchmark is down -5%, and the Fund is down -1%, the performance fee will be calculated and provisioned on 4% outperformance. This fee provision will then be accrued into the unit price on a weekly basis. Payment to Forager of any provisioned fees will only take place once the Fund experiences positive performance for a period of six months and the accrued fee can be reduced by any underperformance between the fee being accrued and it becoming payable.

Performance fees are net of management fees

The determination of any performance fee is based on fund performance, after base fees and expenses are subtracted from the Fund.

Our core values remain the same

The core values of Forager as a business remain the same. Our priorities are long-term fund performance and good outcomes for investors. A performance fee will not change this. In fact, we hope it only reinforces these values.

Over the past two years, we have done a large amount of work on pay and performance to ensure the business has the appropriate incentives in place. The implementation of a performance fee for the Fund is central to this. We have considered whether the wrong incentives could be created and believe this can be managed.

You can find a summary of our fee survey results here

RESULTS SUMMARY
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