Global active equity management fees for the largest investors have managed to withstand growing pricing pressures in the last few years, according to research by bfinance.
In its report entitled Investment Management Fees: New Savings and Challenges, the investment consultant found global active equity fees for institutional investors had fallen by a "meaningful" 8% since 2010. Average fees quoted by global equity managers have decreased from 62bps between 2006-2009 to 57bps between 2015-2017, while some firms were able to negotiate an average discount of 12%, reaching as high as 46%.
But this reduction was significantly less than in other sectors such as smart-beta, where fees were down 25%, and low volatility strategies, which were 24% lower. The median quoted fee on the most recent smart-beta searches is around 30bps for a €100m mandate.
Meanwhile, fund of hedge fund fees were down 20% (30% in Europe) and private debt management charges fell over 30%.
The report's authors suggest a number of causes for the resilience of active equity fees, such as the transparency relative to other sectors (causing a tendency to cluster around known average fees) and the trend to position active offerings as complementary to systematic strategies, rather than competitive.
David Vafai, chief executive at bfinance, said: "We hope that publishing information on fees quoted by asset managers, as well as negotiated discounts, will help to promote the interests of asset owners.
"But it is important to remember that visibility can be a double-edged sword: while benchmarking can help to ensure that investors don't over-pay, it may also make managers less likely to offer prices significantly below the average."
bfinance also found that despite the fee cuts, the average large pension fund is paying out a higher proportion of its AUM in investment costs than ten years ago.
Data from CEM Benchmarking shows that total fund costs of the institutions in their database have risen from 37.8bps to 57.3bps over the past ten years.
A significant factor in this trend is the growing demand for illiquid investments and alternatives, new premium strategies promising higher yield and unexpected pricing resilience in certain asset classes, according to bfinance.
Meanwhile, the report said pricing in the absolute return fixed income sector was a "shambles". It found the average price from 95 asset managers was 48bps for benchmark-agnostic fixed
income strategies, while the average discount negotiated was 15%.
"The sector is remarkably diverse and poorly segmented. It encompasses strategies that are long-only and long-short, derivatives-light and derivatives-heavy, UCITS and non-UCITS, EMD-dominated and EMD-light, to name just a few differences," the report said.
"Risk levels vary considerably, as does the proportion of credit - a variation exacerbated by the fact that distinctions between classic unconstrained fixed income and multi-asset credit are not clear-cut."
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