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Rating:Dunham Swaps Subadvisors, But Sticks to Pay-for-Performance Fees Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, April 25, 2017

Dunham Swaps Subadvisors, But Sticks to Pay-for-Performance Fees

Reported by Katy Golvala

San Diego, CA-based subadvised shop Dunham & Associates just hired institutional asset manager Perella Weinberg Partners to subadvise its largest fund, the Dunham Monthly Distribution Fund.

Salvatore M. Capizzi
Dunham & Associates
Chief Sales and Marketing Officer
Sal Capizzi, chief sales and marketing officer at Dunham, says that the previous subadvisor was doing a fine job managing the fund, but Dunham makes it a point to constantly evaluate partners to ensure each subadvisor is the best firm for the job.

"With Perella, we found a manager with a track record of better returns than the previous manager, and they did it with less volatility," Capizzi tells MFWire.

According to SEC filings for the fund, Westchester Capital Management previously subadvised.

Perella Weinberg is a global advisory and asset management firm. On the asset management side, the firm has slightly over $13.7 billion in assets under management, offering hedge fund strategies, private accounts, separately managed accounts, and mutual fund subadvisory services. This marks the fourth fund that the firm subadvises and its first partnership with Dunham.

In 1985, when Jeff Dunham founded Dunham at the age of 23, he saw an opportunity to hold asset managers accountable to performance by adopting a fulcrum fee, where managers make more when they outperform their benchmark, and less when they underperform it.

Fast forward more than 30 years, and Dunham currently manages $1.1 billion in assets and a product suite of 15 funds, all of which continue to use the fulcrum fee to compensate asset managers.

"We knew they had the fulcrum fee and, as an alternative investment shop, performance-based compensation is something that resonates with us," explains Paul Weisenfeld, managing partner at Perella Weinberg.

Capizzi says that, to his knowledge, Dunham is one of the only mutual fund firms where asset managers get paid based on the ability to outperform their benchmark. He notes that the fulcrum fee has been well-received by RIAs and their clients.

"What we don't have in the mutual fund industry is accountability of managers," explains Capizzi. By requiring that asset managers outperform their benchmark net of fees, the fulcrum fee provides this accountability, he says.

As of the end of February, 97 funds — out of a universe of around 8,000 — report using a performance-based fee in their prospectuses, according to Morningstar. 68 of those 97 are Fidelity funds. 

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