US – US pension fund sponsors’ operational costs have risen 10% in the last three years, to almost 0.4% of total assets, according to new research by the Callan Investment Institute – with the rise driven by staff pay and fee rises.
“Fund sponsors spend, on average, nearly 0.4% of total assets to operate or manage their funds,” says a new report by the institute, quoted in the Callan Associates newsletter.
“This is a 10% increase relative to information gathered in a similar survey conducted three years ago. The primary drivers of this increase are from staff compensation and investment management fee increases,” the report states.
But the survey also found higher costs do not mean better performance. “As one might expect, our survey data reveal that there is little correlation between total fund costs and performance, regardless of time period analysed.”
The survey polled 74 endowments and foundations, corporate funds and public funds. Forty-eight percent of respondents had more than one billion dollars in total assets.
“Many factors influence investment-related expenses, or the fund’s expense ratio,” the report says, “including: fund size, percent invested in active vs. passive management, the number of managers and their mandate sizes, percent allocation to non-traditional assets and the type of fund.”
Internal and/or passive management can result in lower costs, though this can be offset by higher compensation figures, Callan said.
As for fund size, the larger funds paid less in fees due to the scaling of investment management fees. Public funds paid 17% less than corporate funds, because investment management fees are lower once asset allocation, active/passive strategy and mandate size is taken into account.
Non-traditional assets such as private equity and real estate are subject to “significantly higher fees” the report says. Among traditional assets, domestic equity mandates result in the highest fees.
Separately, the Callan Investments Institute said it is setting up a new defined contributions arm, dubbed the Callan Defined Contributions Investments Institute. The new body will hold its first annual conference in San Francisco on April 28-30.
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