Are we effectively paying double fees on local ZAR feeder funds?

Feeder funds and “double fees” – let’s clear this up.

This is a great question, and it’s one worth taking seriously because fee structures in these feeder arrangements can look confusing from the outside.

So here’s how it actually works: yes, a feeder fund is technically a unit trust that invests into another single fund, and that underlying fund does have its own fee structure.

But the way these are typically disclosed to you as an investor isn’t as two separate, stacked fees – it comes through in the total expense ratio (TER), which is meant to capture the all-in cost of the fund, not just the headline management fee you see advertised.

The TER, which also picks up trading costs, value-added tax, and other expenses, is what tells you what you’re really paying, and it should already reflect both layers rather than hiding a second layer on top.

One area to be especially watchful of is performance fees.

Where a fund charges a performance fee on top of its base fee, you want to understand exactly how and when that’s triggered – what the benchmark or hurdle rate is, how often it ‘crystallises’, and whether it’s possible for a performance fee to be charged at one level of a feeder structure while the underlying fund isn’t earning one at all.

This has genuinely been a point of contention among analysts and commentators in our industry, so it’s a fair thing to ask your advisor to unpack this line by line.

Read: Why fund managers still disagree about performance fees

Look at the actual TER and the total investment charge (TIC), and get your advisor to walk you through exactly what’s included at each level, and how any performance fee mechanism works.

But here’s the balancing point, and I think it’s an important one: fees should never be looked at in isolation.

A slightly higher TER attached to a manager who has consistently added real value, protected capital in tough markets, and delivered on their stated strategy can still represent excellent value for money – while a ‘cheap’ fund that underperforms or takes on risk you didn’t sign up for can cost you far more in the long run.

The right question isn’t just ‘What am I paying?’ but ‘What am I getting for what I’m paying?’ – the advice, the strategy, the risk management, and the total return over time, all considered together.

This is where a well-run multi-manager portfolio really earns its keep.

Listen/read:
Insights into SA’s asset management industry
Coronation scraps performance fees
‘Not quite 6%’ fees: How this structure protects investors

At PSG, the approach blends several managers under one disclosed, all-in total investment charge, so you’re seeing the full picture in one number rather than trying to reverse-engineer whether costs are stacking across layers.

It simplifies the comparison and lets you focus on the question that actually matters: is this portfolio, and the advice behind it, delivering value for what you’re paying.

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