Sections

Active global equity fees have dropped 11% since 2017: LCP

Related Categories

The average fee for an actively managed global equity mandate for a UK institutional investor has fallen by 11% since 2017, according to LCP.

In its latest Investment Management Fee Survey, the consultancy cited increased competition and downward pressure from low-cost index trackers as the main reasons for the fall.

The survey also revealed “notable” fee reductions in a range of other key asset classes, including multi-asset diversified growth funds, multi-asset credit, liability-driven investment strategies, and passive global equity mandates.

The pensions adviser estimated that a typical £500m (€548m) defined benefit (DB) pension fund in the UK had seen a reduction in total investment fees from 39 basis points to 36bps, or £140,000 a year, in the past 10 years.

The average annual fee for a £50m investment mandate was 65bps, down from 73bps in 2017, saving £40,000 a year, according to the consultant.

It added that the largest contributing factor to declining fees was decreasing allocations to active equity mandates.

LCP calculated that, as a result of DB schemes changing their asset allocations since 2010, the average scheme was paying more in fees to credit and liability-driven investment managers than to equity managers.

Fixed income costs on the rise

While the average fee for actively managed global equity had decreased by £40,000 for a £50m mandate, the cost of a similar-sized corporate bond mandate had risen by £35,000.

LCP suggested that the increase in fixed income fees could be due to pension funds’ demand for bespoke and more sophisticated fixed income strategies.

The survey also found wide variations in reported transaction costs for listed infrastructure and actively managed global equity.

“This illustrated the need to ask managers to explain and justify these costs,” said LCP.

Matt Gibson, head of investment research at LCP, said that falling investment manager fees had allowed investors the opportunity to renegotiate their fees to the new market level.

However, he highlighted that reduced costs didn’t always result in value for money “as fees and costs should be considered against the value created by the investment manager”.

The LCP survey found that transaction costs for global equity and corporate bonds added 25% and 45%, respectively, to asset management costs on average.

It noted that, despite regulatory pressure, many asset managers had not been able to provide detailed transaction cost information, only providing a full breakdown of these costs for 170 of the 677 surveyed products.

LCP said that a change in regulation at the end of 2017 had allowed for accurate and comparable analysis of transaction costs data for UK institutional investors for the first time in the history of the survey.

The LCP survey was conducted among 71 asset management organisations and covered 49 asset classes.

Further reading

Managers urged to comply with new cost disclosure templates
The UK could legislate to enforce new cost transparency codes if investment managers and service providers do not comply voluntarily, the country’s pensions minister has warned

Cost transparency poses threat to asset managers, says Moody’s
The UK’s newly launched investment cost reporting templates could hurt asset managers’ business models and financial stability

Related images

  • numbers money calculating calculation

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2563

    Asset class: Mid & Small Cap Equities.
    Asset region: Global.
    Size: USD $130m.
    Closing date: 2019-09-27.

  • QN-2564

    Asset class: Large Cap Growth Equities.
    Asset region: Global Developed Markets.
    Size: USD $130m.
    Closing date: 2019-10-04.

Begin Your Search Here
<