• Greater willingness of managers of hedge funds, direct private equity and infrastructure funds to negotiate fees
• Almost a third of managers have increased their fees, particularly in small cap equity outside the US
Asset management fees in alternatives have fallen due to supply and demand dynamics, according to a report by Mercer. 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, the fifth such biennial survey, analyses data on more than 25,000 asset management products from over 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.
"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, Global Director of Consulting for Mercer’s Investments business.
According to Mercer, the majority of managers left fees relatively unchanged. Where fee reductions have occurred, the greatest falls have been in equity mandates. Retail equity funds have tended to lower their fees more than have their institutional and segregated counterparts.
Around a third of managers have increased their fees. Most small cap equity strategies have increased fees except in the US where such fees have tended to decrease.
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 $US), Mercer found that Canada remains the most inexpensive country/region in which to invest, with average median fees of around 0.3%. The UK 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 0.89% on average, with Asia averaging 0.75%, a fall of 0.08% since 2010.
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