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IPE special report May 2018

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Management fees predicted to shift downwards

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  • Management fees predicted to shift downwards

GLOBAL - Pension consultant Mercer predicts asset managers will show greater willingness to negotiate fees downwards this year and beyond, under pressure from the economic downturn.

A report by the consultant found asset management fees remained stable in 2008, but are likely to be under pressure in 2009.

The survey, analysing fee data on 19.000 asset management products from 3.400 investment management firms around the world - found alternative investment strategies had the highest fees for each dollar of investor capital allocated.

Alternative product fees expected to come under scrutiny given mixed results in 2008, and fund of fund providers, in particular, will in many cases "have their work cut out to defend the scale of fees being charged" said the survey.

Divyesh Hindocha, Mercer investment consulting business worldwide partner, commnented: "One needs to take care before passing judgement on this evidence, as return and risk considerations should take priority over fees.

"It is fair to conclude, however, that fund of fund approaches extract a heavy premium from the alpha generation process and we would expect this to be under challenge in the new financial environment."

The report found the most expensive mainstream asset category is global emerging markets equity, with median fees in the sector averaging around 0.9%. Median fees for Eastern European equity and Chinese equity were at similar levels.

Other findings of the study include: there will be significant median fee increases in segregated UK small cap and UK equity (all cap) to reflect greater alpha generation potential.

Moreover, pension funds will see a small decrease in median fees for US all/large cap equity commingled products.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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