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Managers should cover research costs, pension funds tell IPE

More than eight in 10 pension funds think asset managers should pay for the cost of independent investment research under MiFID II rules, according to a poll conducted by IPE.

The remainder said managers should calculate the cost of the research at a flat rate and pass this on.

The pension funds were polled as part of IPE’s October focus group survey – see IPE’s upcoming October magazine for more.

One pension fund said: “We are totally against passing research costs to our scheme.”

Another added: “The research should be part of the daily job of the asset manager.”

Pension funds have largely been absent from the debate about MiFID II and research costs, with the focus so far being on whether investment managers will pass them on to investors or cover them internally. The deadline for MiFID II implementation is January 3.

Barings is the most recent major asset manager to have publicly announced its decision. Yesterday it said it would absorb external investment research costs for the $288bn (€240bn) firm’s global equity, multi-asset and fixed-income portfolios.

In announcing its decision, Barings said it had been expanding its in-house research capabilities over the past several years, thereby reducing its third-party research costs. It planned to continue expanding its proprietary research capabilities in the coming years in response to client needs.

In total, 34 of Europe’s biggest asset managers have so far declared or advised how they will comply with unbundling rules, according to IPE research.

Record Currency Management told IPE it had made the decision to absorb the costs of any research, and not pass it onto clients.

A spokesperson for Northern Trust Asset Management said that in the EMEA and APAC regions it does not currently use client’s commission for investment research and has no intention of changing that model.

CBRE Global Investors, meanwhile, told IPE it rarely receives investment research from third parties.

“Research typically received by CBRE Global Investors will be from our in-house research team,” said a spokesperson. “In such cases, we will absorb the costs ourselves and will not pass it on to clients.”

Germany’s Union Investment recently announced it, too, would take onto its books the costs of external research, veering away from the position it had previously indicated it would take.

Alexander Schindler, the executive board member responsible for international institutional business at Union, told IPE there was a “clear move” in Germany for asset managers not to charge clients.

Increasing the use of internal research and alternatives such as big data and analytics would follow from such a decision, he said, as well as changing research providers more frequently. 

Company2017 AUM (€m)Who pays?
BlackRock911,955Manager
Legal & General IM792,950Manager
Insight IM537,983Manager
Aberdeen Standard Investments393,759Manager
Amundi309,169Client
Deutsche Asset Management230,789Manager
UBS Asset Management169,643Manager
Schroders139,634Manager
JP Morgan Asset Management131,707Manager
AXA Investment Managers125,466Manager
Allianz Global Investors91,402Manager
Robeco Group80,105Manager
Northern Trust AM67,379Manager
Union Investment63,812Manager
Vanguard Asset Management61,837Manager
Baillie Gifford & Co52,857Manager
Record Currency Management48,552Manager
Newton Investment Management43,719Manager
Aviva Investors42,856Manager
CBRE Global Investors41,000Manager
Janus Henderson Investors40,997Manager
NN Investment Partners36,382Manager
Invesco34,004Manager
Hermes Investment Management33,423Manager
Kempen Capital Management32,274Manager
Barings25,894Manager
Russell Investments24,922Manager
Franklin Templeton Investments19,440Manager
BlueBay Asset Management18,565Manager
Unigestion14,968Manager
J O Hambro Capital Management14,773Manager
T Rowe Price11,759Manager
First State Investments11,282Manager
TwentyFour AM9,175Manager

Notes: AUM figures based on institutional assets, taken from IPE’s Top 400 asset management survey, correct to 31 December 2016. MiFID II decisions sourced from company releases and public reports as of 20 September 2017.

Email nick.reeve@ipe.com with any updates for the table.

Readers' comments (1)

  • The big question is how much will asset manager research budgets fall when there's a potential conflict between the obligation to buy the most suitable research for the investment strategy and the profitability of the manager? Enough to affect the investment process? What risks are there to future returns? What is the performance trade-off for asset owners to avoid a 3 Bps research charge in a 700 Bps return product? Not as binary as the initial reaction.

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