Individual asset managers’ unwillingness to increase fee transparency risks damaging the entire industry’s reputation, according to LCP, as it claimed fee structures were yet to align with clients’ best interests.
The consultancy’s annual survey of investment management fees argued that many payment structures were rewarding firms simply for retaining clients rather than delivering returns.
It noted that even a hypothetical global equity mandate that had underperformed the benchmark by 200 basis points would have seen fees increase ahead of the UK’s retail prices index over the last five years, with the proposed agreement seeing fees increase in line with mandate size rather than manager performance.
The survey, which covered around four-fifths of the UK institutional manager market, found that fees had risen by 57% for the average global equity mandate, and that there was an increase in UK equity manager prices stemming largely from a reduction in the number of firms overseeing such strategies.
Additionally, more popular asset classes, such as corporate bonds, had seen their fees increase by 30% or more over the last five years, as pension funds began increasing their holdings in the area, LCP found.
Mark Nicoll, investment partner at LCP and the survey’s author, said the mist surrounding many investment fee agreements was gradually lifting.
“However, greater transparency is needed, as there are still far too few managers disclosing the level of transaction costs, and this intransigence threatens the reputation of the whole industry,” he said.
LCP said only 17% of participating managers this year were unable or unwilling to disclose all their indirect costs.