E-mail this page				Print this page

Contact: Mags Andersen
Tel: +44 20 7178 3513

UK
London, 19 February 2009

• Overall fees in most asset classes remained stable in 2008
• Greater willingness to negotiate fees downwards, especially in alternative asset classes, will emerge in 2009 and beyond
• Significant median fee increases in segregated UK small cap and UK equity (all cap) reflect greater alpha generation potential
• Small decrease in median fees for US all/large cap equity commingled products.
• Alternative product fees expected to come under scrutiny given mixed results in 2008. Fund of fund providers, in particular, will in many cases have their work cut out to defend the scale of fees being charged.

Asset management fees remained stable in 2008 but are likely to be under pressure in 2009, according to a report issued by Mercer.

Mercer’s 2008 Asset Manager Fee Survey is a biennial report analysing fee data on 19,000 asset management products from 3,400 investment management firms. The survey covers asset managers in a range of geographies and across numerous products including pooled and separately managed accounts.

The study is intended for use as a reference when assessing asset management fees. For most investors fees are not a critical component in the evaluation of an investment manager product. It is nonetheless an important consideration as they can reduce the expected manager added value by anywhere from 20 to 50 percent.

The survey shows alternative investment strategies to have the highest fees for each dollar of investor capital allocated. According to Divyesh Hindocha, worldwide partner in Mercer’s investment consulting business: “One needs to take care before passing judgement on this evidence, as return and risk considerations should take priority over fees. It is fair to conclude, however, that fund of fund approaches extract a heavy premium from the alpha generation process and we would expect this to be under challenge in the new financial environment.”

The most expensive mainstream category was global emerging markets equity with median fees in the sector averaging around 0.9 percent. Median fees for Eastern European equity and Chinese equity, which were included for the first time in the 2008 report, were similarly high. Small cap equity also continued to be an expensive strategy with median fees around 0.8 percent. Active fixed income had the lowest fees amongst mainstream active strategies, with median fees continuing to average 0.2 - 0.35 percent.

Mr Hindocha commented, “Historically, fees are higher in those strategies where asset managers have the most potential to outperform. However, anecdotal evidence suggests that increasingly asset managers will have to negotiate their fee structures with ever more cost-conscious clients.

“Alpha is now competing with cheap and plentiful beta and capacity is no longer an issue for most strategies,” he continued. “There is the recognition that institutional investors are no longer willing to pay upfront, such large proportions of the potential alpha, especially for the more complex strategies.”

For segregated large cap/all cap equity products, Canadian equity proved the cheapest, with median fees varying from 0.25 percent to 0.35 percent. Australia, New Zealand and US equity averaged around 0.4 - 0.5 percent. The UK has nudged through the top of the band with median fees in UK equity all cap products approaching 0.6 percent. Asia, Europe, Japan and global equity continue to be the most expensive with median fees averaging 0.5 - 0.7 percent.

The results were the same across small cap equity products, where Canada averaged around 0.6 percent relative to between 0.7 percent and 1.0 percent in other regions. The US small cap micro segregated fee scale remained one of the most expensive in the survey. The potential for higher return has allowed successful small cap managers to command higher fees than their broad cap counterparts. When looking at the fee premium for small caps, Canadian, global and US small caps commanded the greatest premium of between 0.25 percent and 0.3 percent. In Europe, Japan and UK equity, the premium ranged from between 0.1 and 0.2 percent.

A comparison of segregated scales for fixed income showed that Australia, Canada and New Zealand were the least expensive with fees averaging 0.2 percent. This compares to an average of 0.3 - 0.4 percent for other regions including Asian bonds.  As with equities, emerging markets proved to be the most expensive, with median fees in emerging markets debt averaging around 0.6 percent.

As expected, the report showed that the median fees for passive, or index-based, equity strategies are 0.5 - 0.8 percent less than those for active strategies. Index-based fixed income strategies continue to cost 0.1 - 0.3 percent less than active fixed income strategies.

Notes for Editors

A segregated fund is one that is managed on behalf of one, typically large client. A commingled or pooled fund is one that combines the assets of numerous, typically smaller clients.

Copies of Mercer’s asset manager fee survey 2008 can be purchased via www.mercer.com/icsurveys or by contacting Marina Zoraya on +44 (0) 20 7178 3282.

E-mail this page

Print this page

Contact: Mags Andersen
Mercer Press Office
Tel: +44 20 7178 3513