GLOBAL – Roger Urwin, global head of investment consulting at Watson Wyatt, says the firm has found pension funds are worried about a “misalignment” between their objectives and asset managers’ remuneration.
“The research indicated there was some concern by funds about the misalignment between their objectives and the basis on which their managers are remunerated,” Urwin said.
But the firm has conducted a survey which found that performance-related fees are now offered by 94% of respondents – and that only 13% of funds have taken it up. “The survey did point to a clear increase in appetite for such arrangements, although most fund respondents believe that asset-based fees will continue to dominate,” Watson said.
Urwin said: “It is clearly in pension funds’ best interests to better understand the motivations, incentives and alignments of interest in the investment manager industry and to seek value for money from their arrangements.
“Considering the use of performance–related fees would be a good first step in this direction.”
The firm found that fees paid to investment managers across all asset classes and regions had generally remained stable – despite the increasing complexity of mandates and greater competitive pressure.
“Given the phenomenal structural developments and changes that have taken place recently it is surprising, yet not unwelcome, to see fee rates largely unchanged,” Urwin said.
The survey found that UK pension were the least satisfied with their existing fee arrangements, with 20% feeling they did not get value for money. The UK also had the strongest appetite for performance-based fees, it said.
The survey, which covers 290 institutions globally and represents over half a trillion US dollars, also dispelled the perception that the shift to specialised management and growth in core-satellite approaches were providing upward pressure on fee structures.