Asset Management Fees Drop for Alternatives
Mercer’s 2012 Global Asset Manager Fee Survey found asset management fees in alternatives have fallen due to supply and demand dynamics. Asset managers in particular are under pressure to negotiate fees for hedge funds, direct private equity and infrastructure funds.
Given the plentiful supply of good quality active management, the level and structure of active fees has been remarkably resilient to a slowdown in demand, according to Divyesh Hindocha, global director of consulting for Mercer’s investments business. “As we move from a defined benefit based pensions system to a defined contribution based pension system, which is much more cost conscious, our hope and expectation is that we see some innovation in this area, as otherwise the demand for active management may well fall off a cliff,” Hindocha said.
The majority of managers left fees relatively unchanged, the report said. Where fee reductions have occurred, the greatest falls have been in equity mandates. Retail equity funds have tended to lower their fees more than their institutional and segregated counterparts.Around one-third of managers have increased their fees. Most small-cap equity strategies have increased fees except in the U.S., where such fees have tended to drop.
In alternatives, what was once a “2 and 20” industry standard continues to move toward “1.5 and 20” as supply and demand dynamics have led managers to be more flexible in negotiating fees, Mercer said.
Taking all asset classes into consideration in U.S. dollar terms, Mercer found that Canada remains the most inexpensive country/region in which to invest, with average median fees of around 0.3%. The U.K. and Europe are also relatively low priced, with average median fees of around 0.4% and 0.5% respectively.
Emerging markets remain the most expensive country/region at .89% on average, with Asia averaging .75%, a fall of .08% since 2010.
Mercer’s 2012 Global Asset Manager Fee Survey, its fifth biennial survey, analyzes data on more than 25,000 asset management products from more than 5,000 investment management firms. The survey covers asset managers in a range of geographies and across numerous products, by way of pooled and separately managed accounts. The study is intended for use as a reference when assessing asset management fees.
—Jill Cornfield