Investment managers need to produce new fee models with more attractive returns to investors and prevent the industry from the regulators’ intervention, according to Remerga.
The emerging markets asset manager said that the current fee structures lacked innovation and encouraged index-like returns.
According to Remerga’s study, “Fee innovation in investment management overdue”, despite a drop in the average headline fee rate, the total cost of investment management was rising and therefore a fresh approach to fees was needed.
Remerga’s chief investment officer, Craig Mercer, said that the typical fee structure was skewed and that managers were incentivised to take less risk and aim for index-like returns.
“The common practice of charging management fees based on asset size is deeply entrenched in the industry but the practice does not take into consideration the time horizon of the investment,” he said.
“Current practice does not reward the longevity of committed capital.
“Given the clear advantage that a long-term investment horizon offers, it would seem logical to encourage long-term capital commitments.”
Mercer also said that the lack of innovative fee structures proved to be more of a global issue and that if the industry did not innovate and aim to improve new fee structures, there was a chance regulators would intervene.
He indicated to the UK’s Financial Conduct Authority (FCA) and its firm stance against the investment management industry, according to which the industry margins were too high, transaction costs were not transparent enough and that investors were not receiving any scale benefits.
According to a report by the UK’s Lane Clark & Peacock the asset management fee for a £50 million active global equity mandate had increased by 70 per cent since 2011.
