The SBAI Standardised Total Expense Ratio (“STER”) calculates a single, standardised expense ratio to facilitate better understanding, comparison and monitoring of fees and expenses across alternative investment funds. A unique and important feature of the new STER methodology is that it includes the costs of research bundled with dealing commissions (often referred to as “soft dollared research costs”). Thus, the STER allows the comparison of a fund’s structural costs on an “apples to apples” basis (i.e., providing additional transparency to which operating expenses are allocated to the fund or conversely borne by the manager). The STER was developed in response to needs amongst institutional investors for a standardised tool to compare and monitor structural costs between alternative investment funds and over time.
To make it useful for comparison purposes, STER excludes incentive fees which will fluctuate as a function of performance and trading related costs that will vary significantly and depend on the specific investment strategy. Given the benefits of a simple, consistent and transparent comparison of costs among funds and peer groups, the SBAI encourages the industry to start to use the STER methodology.
To see the memo in full, please click here.