How Europe's top institutional managers will pay for research
IPE research has found that 92 out of the 120 biggest managers of European institutional assets – responsible for more than €8trn – plan to absorb the cost of external investment research.
With MiFID II rules coming into force on 3 January, Europe’s largest asset managers have been grappling with how to comply with the requirement to unbundle the previously implicit charge for third-party investment research.
Amundi will directly foot the bill for external investment research, as will several major Dutch asset managers. PGGM, the €206bn asset manager for the giant Dutch healthcare scheme PFZW, has yet to decide.
Amundi made its decision last week. Contrary to the stance it had previously indicated it was leaning toward, it will cover the cost of third party investment research itself. This will also apply to its subsidiaries Pioneer and CPR Asset Management.
It did not make a formal announcement, but a spokesman told IPE the manager decided to absorb the costs given the consensus among other asset managers. More than half of the total cost of research used by Amundi’s portfolio managers came from in-house research, it was suggested. External research accounted for a low share of the manager’s total cost base.
Surveys carried out by IPE and its sister publication Pensioen Pro in the Netherlands show that the vast majority of managers plan to absorb costs onto their balance sheets, confirming the picture that has emerged over the course of 2017.
IPE asked 120 of the biggest managers of European institutional assets about their approach to research costs. As of 18 December, 102 managers had responded to IPE’s enquiries, with 92 – responsible for more than €8trn in assets – indicating they would cover the costs themselves.
Two groups are understood to be setting up ‘research payment accounts’, which will charge research costs directly to investment funds – i.e. the client foots the research bill.
These are Fidelity, which incorporated the shift within a bold restructure of its equity charging structure, and Germany’s Metzler Asset Management.
A number of companies indicated that the MiFID II research rules would have little effect on their operations. Pantheon planned to absorb costs but given its primary focus is private equity, this would not make much difference to its business model, it has said.
Dimensional Fund Advisors and Arrowstreet Capital both said that they would pay for external research but in reality make very little use of it, preferring to use internal resources.
A survey by IPE’s Dutch sister publication Pensioen Pro has revealed that large Dutch asset managers are to pay for external investment research themselves as of 2018.
The €456bn APG, the €19bn Blue Sky Group and the €18bn SPF Beheer have all opted for this approach.
However, fiduciary manager Blue Sky Group said it would make an exception if research costs had been incurred for a single client, indicating that it would charge the client the full costs in such case.
Asset managers MN (€108bn) and TKP Investments (€25bn) previously announced they would absorb the costs of purchased investment research.
PGGM indicated to Pensioen Pro that it still had not made a decision on the issue.
Ultimately, however, large pension funds, such as civil service scheme ABP as well as the metal pension funds PMT and PME, will have to absorb research costs anyway as they are often shareholders of their asset manager.
The Dutch asset managers have not revealed how much they pay for research costs at the moment, and it isn’t clear either whether they are facing higher costs. Although MN said it expected costs to increase, TKP Investments said future costs would depend on prices charged by research bureaus and the asset manager’s own needs for research.
Amundi expects to be able to lower costs as a result of its purchasing power, in particular following the acquisition of Pioneer.
IPE will publish its research in full as part of a Special Report on investment research in the January edition of IPE magazine