The perfect performance fee (part 3)

Part one of this series was an overview of how performance fees work, and part two challenged industry reasons for why we need them.  Here we look at different fee structures and ask whether they are fair to investors.  

The intention is to highlight practices (not individual managers) so an effort has been made to ensure managers cannot be identified.  For example paragraph two below does not use real NAV numbers and in para 4 below the equity benchmark has been changed so the fund cannot be identified.  Each example is based on a real performance fee - these are not made up.  As an investor or adviser do you rate the practices below as fair?

1.  Using cash hurdles for equity funds
Investors often accept  the idea that an outperforming fund manager should be paid a performance fee.  If the manager delivers a truly outstanding return, then they should share the rewards with investors.  If you’ve invested in a fund where the manager outperforms by 2% then no problem paying them extra - they have earned it.  Or have they? 

How about if the out-performance was an international share fund beating the NZ cash rate (OCR) plus 5%?  NZ cash rate plus 5% is currently 8.5%.  In 2014 that was not a huge hurdle as world equity markets were up 11% in NZ dollar terms.  How would you feel about the international equity manager beating cash + 5% but failing to beat the MSCI World (in both NZD hedged and unhedged terms)?  How can a manager fail to beat the market but still collect a performance fee?  Is that fair to investors?  Should the hurdle for a performance fee not have some relevance to the asset class invested in?