Gross weighs in on fund performance

July 29, 2009 | By Jim Kim

We noted recently that Putnam was aiming to make a splash in the mutual funds industry by moving to performance fees for some funds. Now Bill Gross, head of PIMCO, has weighed in with his view that lots of funds charge exorbitant fees, around 1 percent, for subpar performance. When funds are racking up huge gains, this 1 percent is tolerable, but what about when funds are posting mediocre gains?

Gross notes that a if a fund were to charge 1 percent and eke out a 6 percent gain, customers are paying out 15 percent. By that measure, costs really are high. We'll see if this stokes the fires of performance fees vs. asset-based fees. We've heard all this before, and yet the industry is reluctant to change. You can't blame them. Unless the market demands change, they'll stick with the status quo.

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