Asset management costs including transaction costs of Dutch pension funds rose by 46% to €13.5bn in 2021, according to a study by pension consultancy Bell. The rise comes after years of stable or slightly lower costs.

Costs rose by an unprecedented €4.3bn in total. As a percentage of assets under management, costs also went up strongly from 0.55% to 0.77%.

The main reason for the conspicuous cost rise were performance fees paid to private equity managers, mainly by the country’s two largest pension funds ABP and PFZW. Excluding the two giants, costs rose by just 0.09% to 0.59%.

According to consultant Jeroen Koopmans of Bell, the cost rise is extraordinary in the sense that it is much larger than in previous years. The rise may be a one-off, however, and costs may come down again this year as private equity funds are unlikely to repeat the kind of performance they reported over 2021.

“Equities are having a very bad year and this will also impact valuations of private equity,” he said. DNB data indeed show that asset management costs for pension funds were some €900m lower in the first half of 2022 than they were during the same period the year before.

Though private equity managers tend not to directly receive performance bonuses in cash from their pension fund clients as these tend to be reserved for accounting purposes.

Koopmans is critical about the “unlimited amounts of money” paid to private equity funds, saying: “Of course returns have been very high, and members also benefit from this. Managers are entitled to reaping the fruits from this as well, but the sheer amounts of compensation they earn make for uneasy feelings. It’s questionable whether this is actually acceptable for society.”

The latest digital edition of IPE’s magazine is now available