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Mercer study sees falling fees for alternative asset management

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GLOBAL – Asset management fees in alternative asset classes have fallen due to supply and demand dynamics, with asset managers under pressure to negotiate fees for hedge funds, direct private equity and infrastructure, according to Mercer.

In its fifth Global Asset Manager Fee Survey, the consultancy said that, given the "plentiful" supply of good-quality active management, the level and structure of active fees has been "remarkably" resilient to a slowdown in demand.

Divyesh Hindocha, global director of consulting for Mercer's investments business, said: "As we move from a defined benefit-based pensions system to a defined contribution-based system, which is much more cost conscious, our hope and expectation is that we see some innovation in this area, as otherwise the demand for active management may well fall off a cliff."

According to Mercer, the majority of managers left fees relatively unchanged over the course of last year.

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Where fee reductions have occurred, the greatest falls have been in equity mandates, while retail equity funds have tended to lower their fees more than their institutional and segregated counterparts.

However, the report also revealed that approximately one-third of managers have increased their fees, particularly those running small-cap equity strategies, except in the US, where such fees have tended to decrease.

Mercer concluded that, in alternative asset classes, where '2 and 20' fees were originally the norm, the industry standard continues to move toward a '1.5 and 20' fees strategy, as supply and demand dynamics have forced managers to be more flexible when negotiating terms.

Taking all asset classes into consideration, Canada remains the most attractive destination in which to invest, with average median fees of around 0.3%, according to Mercer.

The UK and Europe also enjoy relatively low fees, with average median fees of around 0.4% and 0.5%, respectively.

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