Orbis Access : funds that only charge fee if they do well

You won't pay a fee if these funds underperform.

Fund manager Orbis Investments has launched a new investment platform which ensures that you will only pay fees for your investments when they do well, and not pay a penny if the funds underperform.

Through Orbis Access you can invest in two funds previously available only to institutional investors and high net worth individuals: the Global Equity Fund and the Global Balanced Fund.

Orbis has broken ranks with the rest of the fee-heavy fund-management industry by not charging entry, exit or flat fees for ongoing annual management. Instead, it relies solely on a performance fee, which is half of the fund's yearly outperformance against its benchmark (in this case the FTSE World Index).

Who is Orbis?

Orbis Investments was founded in 1989 and today manages over £15 billion of investors' money, using what it describes as 'a fundamental, long-term and contrarian investment philosophy.' Orbis' flagship Global Equity Fund has outperformed its benchmark by 4.8% a year (after fees) since inception in 1990.

This places Orbis top of its peer group in terms of performance over the past quarter-century.

As a result, if UK investors had access to its main fund over the past 25 years, they would have paid an average yearly fee of several percentage points. This may seem steep compared to the 1.5% annual management charge (AMC) levied by typical UK funds. However, Orbis levies no fee in years when it fails to beat its benchmark.

What's more, there are no entry, exit and flat fees whatever, even when you invest as little as £1.

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What's the catch?

So, what's the trick? Surely this is simply too good to be true?

Many funds look fantastic at first glance, but only when you dig deeper do you find many pitfalls and drawbacks. However, I can't see any obvious drawbacks to investing in this fund. Let's go through the usual checks I run on a fund to see if we can find any snags:

Flexibility and liquidity

[SPOTLIGHT]There's no point lumping cash into a fund, only to find out that you can't pull your money out when you need to, or you have to pay a fortune in fees in order to cash out. But there are no exit fees to worry about here. It's easy for all investors, large or small, to invest too as Orbis accepts sums from as little as £1 and there's no entry fee either.

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Performance

Over the past 25 years, Orbis' main fund (the Orbis Global Equity Fund) has beaten its benchmark by an average of nearly 5% a year after deducting fees. That's a very impressive achievement.

However, always remember that, when it comes to investment performance, the past is no guide to the future. In addition, as Orbis' funds get bigger, their performance could suffer, thanks to size issues. Even so, based on its record over the past 25 years, Orbis get a firm thumbs-up from me.

Fees

What Orbis Access seems to offer is the performance and absolute returns of hedge funds, but without their infamous fee structure.

Most hedge funds charge a flat fee of 2% a year, as well as taking 20% of any gains above a certain watermark. These high fees rapidly transfer money from investors to hedge-fund managers, making managers rich and leaving investors wondering where their money went.

By charging a fee of 50% of any outperformance above its benchmark, Orbis Access is paid well in the good years, but gets absolutely no fees for failure. Again, this makes it a fair fund, with a fee structure that aligns the interests of both investors and fund managers.

Will others follow

This launch follows a report published last November by London's Cass Business School entitled 'Heads we win, tails you lose' which showed that most existing fixed-fee structures are great for fund managers, but terrible for investors.

That's why I hope this new venture is successful, as it will push other fund managers to improve the fairness of their fees.

What do you think? Will you invest through Orbis? Or do you prefer a fixed-fee structure when investing? Let us know your thoughts in the comments box below.

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