High fees incurred by institutional investors do not necessarily translate to high performance, according to a report published today, which establishes a broadly inverse correlation between fund performance and charges.
According to ClearGlass Research, the report established that widespread transparency has the potential to unlock a better functioning global active equities market by helping asset managers to price competitively.
It found that asset managers charging lower fees for global active equity funds generally deliver better value for money.
The research house expects its findings to support managers to price their services at the optimal level, after the Financial Conduct Authority’s Asset Management Market Study found that UK asset owners, such as pension funds, are struggling to determine the value for money they derive from investments.
Chris Sier, chief executive officer of ClearGlass Analytics, said: “The data reveals the true extent to which the perceived costs differ from reality. Anyone basing their procurement upon publicly available data will inevitably be wrong.”
The report provides the industry with client-specific, deal-specific fee data collected via the Cost Transparency Initiative (CTI) framework, which is markedly more accurate than publicly available information, ClearGlass claimed.
Sier said the CTI template was a “game changer”, adding that it would provide “a market wide database that transcends any individual managers assessment framework [that] will inevitably help support consultants, asset owners and asset managers to make the best decisions for the end investor”.
Crunching numbers
The report – the first in a quarterly series – analysed data from 79 asset managers with 139 pension scheme clients across a total of 616 mandates. Of those 79, the report identified the top 20% of asset managers providing the best value for money for their clients in global active equities.
Three managers – Baillie Gifford, Majedie Asset Management and Wellington Management International – were awarded “Elite” manager status, as they ranked in the top quartile for both costs and performance.
The report also found that fund charges available through public sources differ widely from the costs clients incur for the same product. Hidden discounts mean investors remain unaware of the true market prices and therefore cannot accurately assess whether they have secured an accurate deal, it said.
It also noted that economies of scale exist for ongoing charges and assets under management (AUM). As expected, the larger the mandate, the lower the ongoing charge and this is generally the case except the data reveals this is only true for high performing managers.
In other words, low performing managers do not generate economies of scale when dealing with larger AUM.
Upcoming reports will focus on other areas including global active income, active high yield and UK active equities. It is anticipated that these will also show publicly available price and cost data deviating from true market pricing, ClearGlass said.
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