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Alternative assets 'cheaper than their reputation', says consultant

Competition has pushed down fees for senior secured loan funds to between 0.3% and 0.7% annually without performance fee in Switzerland, according to a consultancy firm.

Swiss investment advisory group Siglo said institutional clients had secured low fees for the asset class and argued that “exchange-traded funds are not cheaper and stay well behind the (hardly replicable) indices in their returns”.

Siglo said: “Alternative assets are still perceived as being expensive and untransparent but advanced Pensionskassen are demonstrating impressively how such investments can push diversification and returns.”

For trend-following (CTA) funds the advisers reported fees for “good funds” between 0.5% and 1% annually prior to performance fees.

“In light of the considerable competition we expect more products to come to the market at these prices,” Siglo pointed out.

In a market comment (available in German), the investment advisors spoke of a “(r)evolution” (sic) in the alternative space: 

“Asset managers in that segment have heard the criticism about fees and transparency and have reacted to it,” the consultancy said. “The information made available on demand is impressive and much better than for investments in traditional asset classes.”

However, Siglo noted that there were still some negative examples of untransparent and expensive managers in the alternative segment.

The most recent Swiss Pensionskassen statistics collected by Credit Suisse showed an increase in alternative assets to 6.86% at the end of 2016.

However, this “record high” to a very large part comprised hedge funds, private equity and commodities. Statistics on the use of “new” alternative asset classes like loan funds are still rare. Mostly, they are only used by larger Pensionskassen.

Siglo emphasised that Swiss investment regulations for Pensionskassen demanded a spreading of risk.

“It seems paradox for investors to exclude the whole range of alternatives in general arguing costs and transparency when trying to fulfill this useful stipulation,” the group added

Alternative asset managers offering products in Switzerland have come under pressure since a decree on cost transparency demanded all Pensionskassen report their fees and costs for asset management services.

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