LONDON (Reuters) - Aberdeen Asset Management will impose a 2 percent initial charge on some of its emerging markets funds, the company said on Friday, in an attempt to stem investor flows into these large and strongly-performing portfolios.
Emerging funds have seen a surge of interest in recent years as investors hunt for yield amid weak growth in developed markets, a search fuelled by cheap money from central banks such as the U.S. Federal Reserve.
While fund firms earn management fees on the quantity of assets they manage, they sometimes close funds or try to limit investor inflows because they feel running too much money can make the fund unwieldy and hinder performance.
Aberdeen’s ADN.L move to impose an additional initial charge comes after last year’s decision to soft-close the emerging market fund, meaning it is no longer promoted to new clients.
“Despite our most recent efforts to date to slow inflows into our emerging market products, we have seen inflows pick up again,” Aberdeen said in a statement.
“To prevent this increasing further the decision has been taken to introduce a 2 percent initial charge on our Global Emerging Markets pooled funds in Europe, and our U.S. domiciled mutual and commingled funds will be closed.”
According to Lipper, global emerging markets funds were the most popular equity sector over 2012, attracting about $25 billion (16 billion pounds) in net inflows during a year which saw net outflows from all equity funds reach more than $200 billion.
Aberdeen’s 3.7 billion pound Emerging Markets equity fund has returned 11.1 percent in the past five years on an annualised basis compared with 3.5 percent returns on the underlying benchmark.
The company said the charge would be imposed on this fund as well as the $15.5 billion Aberdeen Global Emerging equity fund and the $2.7 billion Emerging Markets Smaller Companies fund.
The firm noted that if inflows were allowed to continue unchecked, it would give rise to “liquidity issues”.
Aberdeen said its new charge would be paid into the fund for the benefit of all investors and not Aberdeen. Annual management charges will remain unchanged.
Emerging markets still comprise just 10 percent of the MSCI World Index but the past decade has seen a huge pick-up in interest in the asset class, leading to fears that steady investor inflows could create asset bubbles.
Reporting by Sujata Rao; editing by Laurence Fletcher and Toby Chopra