Schemes call on managers to cut fees

The search and selection consultancy found the worst performing equity class in terms of investor satisfaction is global tactical asset allocation (GTAA), where 86pc of investors feel they get poor value for money, followed by fund of hedge funds (FoHF) where 60pc of respondents think they do not get value for money. It said pension funds feel that hedge fund and fund of hedge fund fee levels all need to be reduced.

However, the majority of pension funds believed they got value for money from passive equity managers - with 96pc of respondents declaring it good or fair.

bfinance managing director of research and development Olivier Cassin said: "Clearly, investors are still willing to pay performance fees to reward long-term skill but are no longer willing to pay active fees for beta or for 'luck'."

Hedge Fund managers agreed that fees would likely go down and indicated they expect the median level for base fees for FoHFs to decline 9pc to 95 basis points and for the median level of performance fees for hedge funds to decline 25pc to 13pc.

Although more than half of pension funds surveyed wanted an unconditional reduction in base fees, a substantial proportion would be willing to accept longer lock-up periods in exchange for lower fees.

Conversely, 68pc of managers indicate that they would be willing to offer a base fee discount for a two year lock-up and 79pc of managers would be willing to do so in exchange for a three year lock-up.

bfinance chief executive David Vafai explained: "Although the study indicates disenchantment with the industry in general, and disenchantment with Fund of Hedge Funds and GTAA managers comes out particularly clearly, the study also rather paradoxically suggests that allocations to FoHFs, as well GTAA, infrastructure, real estate and private equity fund of fundsare set to increase in the future."