Samuel Isaly, a veteran Wall Street fund manager, is set to pocket fees approaching 20m (€31.4bn) for his recent stellar performance in advising the 250m Finsbury Worldwide Pharmaceutical Trust.
Although the quoted British trust is six years old, most of the money has been earned in the period since March 1999. From then until March 2000, its last financial year, the trust nearly doubled in value. Despite a slowdown in biotechnology and pharmaceutical stocks in the last few weeks, the net asset value per share has soared a further 36% since last March.
Contacted in New York on Friday, Isaly, a Princeton graduate, felt no need to apologise for the large payments. 'We are being paid a lot of money for our spectacular performance,' said Isaly, adding that his firm, OrbiMed Advisors, was 'best in class' over five years among its 50-strong peer group.
'To me the performance fees are a reward for the continuing work we have done over five years,' said Isaly.
In fact the annual report for the Finsbury trust makes it clear that, in the first few years of its existence, growth in net asset value per share lagged its benchmark, the Datastream World Pharmaceutical Index. The huge fees essentially reflect more recent outperformance.
Of the 20m, over 10m in accrued performance fees for the 1999/2000 year becomes payable at the end of March. The huge cash sum will make an agreeable birthday present for Isaly, who is 56 next month.
Before setting up his own advisory business, Isaly headed Warburg's worldwide research in pharmaceutical and biotechnology stocks. Before that he had spells at Chase Manhattan, Société Générale and Credit Suisse.
Isaly's New York-based company is entitled to a further near-7m in performance fees accrued in the current year, although this amount is not payable until March 2002. Additional amounts are payable in regular investment fees, and there is another 2m eventually payable to an earlier Isaly partnership, which held the advisory contract before OrbiMed.
Isaly insists that it is tough to beat the benchmark. The formula is complex, with OrbiMed entitled to 15% of the amount that current outperformance against the benchmark exceeds the outperformance at the end of the previous quarter.
Close Finsbury Asset Management, originally part of the Rea Brothers stable before its takeover by Close Brothers, is arguably even better rewarded, at least in terms of the amount of effort expended. As well as a regular fee, the firm, which manages Finsbury Worldwide, is entitled to a 5% performance fee, even though the stock selection is farmed out to Isaly.
Both Close and Isaly's OrbiMed are entitled to 24-months notice if their contract is terminated, much longer than is now standard in the investment trust world.
Isaly runs OrbiMed as a very tight ship. The firm, which is also in charge of the highly successful Cadaceus hedge fund, has $3bn (€3.27bn) under management. Isaly says he employs just 20 people, of whom 12 are analysts.
His office wall is graced by a framed copy of a letter from Burt Malkiel, the academic whose book A Random Walk Down Wall Street sledged active managers and helped promote the rise of the index trackers.
Malkiel, in a move he must regret, wrote to Isaly asking for his advice on a particular pharmaceutical stock. Isaly dines out on the story of how 'the quintessential indexer asked me for a share tip.'