Alternatives are the only asset class that has experienced a major drop in asset management fees, according to new research by Mercer. The drop is due to supply and demand dynamics, in particular, asset managers are under pressure to negotiate fees for hedge funds, direct private equity and infrastructure funds.
Mercer’s 2012 Global Asset Manager Fee 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.
"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. 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,” said Divyesh Hindocha, gobal director of consulting for Mercer’s Investments business.
The majority of managers left their fees unchanged, while one-third of them increased their fees. The greatest reduction in fees has been in equity mandates. Retail equity funds have tended to lower their fees more than have their institutional and segregated counterparts.
Most small cap equity strategies have increased fees except in the United States where those fees have decreased.
In alternatives, what was once a “2 and 20” industry is now more of a “1.5 and 20” as supply and demand dynamics have led managers to be more flexible in negotiating fees, according to Mercer.
Taking all asset classes into consideration, Mercer found that Canada remains the most inexpensive country/region in which to invest, with average median fees of 0.3 percent. The UK and Europe are also relatively low priced, with average median fees of around 0.4 percent and 0.5 percent respectively. Emerging markets remain the most expensive country/region at 0.89 percent on average, with Asia averaging 0.75 percent, a fall of 0.08 percent since 2010.