Competition driving fee compression
Rising competition from new and cheaper products has helped drive down funds management fees, according to new research released this by investment consultancy group, bfinance.
The bfinance report, “Investment Management Fees: New Savings, New Challenges”, found that active global equity management fees had dropped by eight per cent since the 2010-2014 period as many big investors embraced passive strategies, brought functions in-house or pulled vendors to the negotiating table.
It found low volatility active managers were among the hardest hit, with fees down 24 per cent since 2010.
Commenting on the research, bfinance director, Australia, Frithjof van Zyp said active managers in Australia and globally were under tougher scrutiny than ever and investors were increasingly reluctant to pay inflated fees for betas dressed up as alpha.
“What our research has shown is that fees are responding to a new dominant mindset among investors, which is that while returns are hard to predict, small cost reductions deliver guaranteed gains over the long-term,” he said.
The research suggested other sectors to suffer large falls were smart beta funds, down 25 per cent since 2011, and fund of hedge funds, which had cut fees by 20 per cent since the 2010-2014 periods as they sought to recover ground lost after the rout of their assets during the global financial crisis.
Despite ongoing fee pressure, the report noted overall costs had actually increased for sophisticated investors due to greater allocations to private markets and new breeds of premium product, citing data from CEM Benchmarking indicating pension fund costs had grown from 37.8 basis points to 57.3 basis points over the past 10 years.
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