GLOBAL - Global consulting firm Watson Wyatt has found that the shift to specialised management and growth in core-satellite approaches have not increased fund manager fees, contrary to popular perception and fees across all asset classes and regions have remained stable in the last three years, although with some downward pressure.
However, the consultants said that rising fee scales are anticipated as managers will also be looking to pass on rising costs, primarily in equities. They may also be able to achieve higher fees in specialised high-alpha mandates.
The survey found that European funds were experiencing upward pressure on fees in contrast to trends in other regions, mostly due to the widespread portfolio restructuring by international managers that tend to price differently, particularly on specialist mandates. The survey showed that public sector funds were also experiencing upward pressure on fees.
Roger Urwin, global head of investment consulting at Watson Wyatt, said: “Five years ago when we first conducted this research, mandates were generally simpler and less specialised. Given the phenomenal structural developments and changes that have taken place recently it is surprising, yet not unwelcome, to see fee rates largely unchanged. In addition, more flexible fee structures are emerging, typifying a marketplace which is becoming more competitively efficient.
“More funds than ever are working actively with their portfolios to achieve fund-specific benchmarks and objectives. As a result there has been a considerable growth in specialist and core-satellite approaches often implemented by non-domestic providers. While this trend should have increased upward pressure on fees, fund managers have found the market too competitive to achieve higher fee rates. But the view from the survey is that managers may be able to achieve higher fees in future, particularly in specialised high-alpha mandates.”
The research revealed that there was some concern by funds about the misalignment between their objectives and the basis on which their managers are remunerated.
Performance-related fees, according to the survey, are now widely available, with 94% of respondents offering this option - however only 13% of funds have taken it up. The survey did point to a clear increase in appetite for such arrangements, although most fund respondents believe that asset-based fees will continue to dominate.
The survey covered 290 institutions globally, representing over half a trillion US dollars.
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