GLOBAL - The current environment of lower expected returns will see managers having difficulty justifying above average fees going forward, a Mercer Investment Consulting study on investment management fees has revealed.
The latest Mercer study showed emerging market equity strategies to be the most expensive with fees averaging 0.88% for a US$100m segregated mandate.
Small cap equity products were also found to be expensive with Canadian, global and US small caps commanding a premium of 25 basis points.
The survey showed fees for traditional active fixed income products were markedly lower.
The limited capacity of small cap equity managers results in fees declining less rapidly as placements grow, Mercer noted.
Industry players believe this to be a time of lower expected investment returns and Mercer claimed: "Fees can be a material drag on performance in such an environment."
Divyesh Hindocha, worldwide partner and global director of consulting at Mercer Investment Consulting, commented: "Given that we are in an environment of lower expected returns, albeit one with a ‘dash for alpha’, we believe investment managers will find it hard to justify above-average fees unless they have demonstrable competitive advantages which they articulate clearly.”
In terms of regional fees for equity strategies, Asia was shown to have the highest while Canada had the lowest.
According to Mercer, investment management fees have remained relatively stable since the last study was carried out in 2004. In spite of this, however, the varied market conditions over the last two years have affected the relationship between the fees and performance.
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.