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Downward pressure on fund management fees only seen in 'mass-market' products

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  • Downward pressure on fund management fees only seen in 'mass-market' products

GLOBAL - Downward pressure on fund management fees felt since the financial crisis only extends to "mass-market" products and solutions, according to Keith Skeoch, chief executive of Standard Life Investments.

Speaking at a discussion including Andrew Laing, deputy chief executive of Aberdeen Asset Management, Skeoch also said the search for uncorrelated returns was a topic on investors' minds at the moment.

Speaking of the types of funds that were feeling pressure on fees, he admitted that while his company did offer index-tracker funds, they were not its main focus.

He argued that the downward pressure in fund management fees was mostly felt in such tracker vehicles and in "mass-market" products, particularly passive and index solutions, as well as "anything that is liability driven and anything that is close to a benchmark".

He argued that, to counteract this downward trend, managers needed to offer a premium product that would in turn justify a "premium price" in management fees.
 
"Throughout the last five years, through doing that, we've been driving up our revenue yield," he said of SLI's recent development. "There are not many active managers who are suffering from downward pressure on fees."

Laing meanwhile argued that, provided managers were investing "precisely in the way you told them", any underperformance was often tolerated, without impacting fees.

Skeoch added: "Actually, what people could be valuing is investment performance and successful active performance that provides them some kind of uncorrelated return."

He added, saying that he believed Baillie Gifford had recently seen success through such approaches.

"There is a real need to search for uncorrelated return," he said. "Where there are a lot of conversations going on between clients and with consultants is finding two things."

Skeoch said that one of the sources of such return could be in emerging markets, due to the differences found between it and the Western economies, while the second was gaining such uncorrelated return where volatility was dampened.

"People want to be investors, they don't want to be traders," he said, arguing they wanted to seize the opportunity and seek out the value created by such volatility.

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