US Pension Operating Costs Jump 10%

January 3, 2003 ( - Staff pay hikes and investment management fee increases have driven US pension fund sponsors' operational costs higher by 10% over the last three years.

Pension fund operating costs now average almost 0.4% of total assets, according to new research by the Callan Investment Institute, an IPE news report said

Among the factors affecting a fund’s expenses, according to Callan, are:

  • fund size
  • percent invested in active versus passive management
  • the number of managers and their mandate sizes
  • percent allocated to non-traditional investments
  • type of fund.

Internal and/or passive management can result in lower costs, though this can be offset by higher compensation figures, Callan said.

As for fund size, the larger funds paid less due to the scaling of investment management fees. Public funds paid 17% less than corporate funds, because investment management fees are lower once asset allocation, active/passive strategy and mandate size is taken into account.

Non-traditional assets such as private equity and real estate are subject to “significantly higher fees” the Callan report says. Among traditional assets, domestic equity mandates result in the highest fees.

The survey polled 74 endowments and foundations, corporate funds and public funds. Some 48% of respondents had more than one billion dollars in total assets.