On the go: Asset managers charging lower fees for global active equity funds often deliver better value for money, but the fees collected differ greatly from those presented in the public domain, according to a report from ClearGlass Analytics.
Drawing on data from the Cost Transparency Initiative, and a proprietary database containing 79 asset managers serving 136 pension schemes, the ClearGlass Analytics report showed an inverse correlation between charges and performance, with those charging the highest fees seldom showing the best performance.
The Financial Conduct Authority has previously warned that UK asset owners, including pension funds, are often unable to determine the value for money provided by their investments owing to a lack of transparency.
ClearGlass Analytics said the CTI was able to address the issue, providing more accurate data than is publicly available, given it lists specific deals struck between asset managers and asset owners.
The CTI framework was established by the Pensions and Lifetime Savings Association in partnership with the Investment Association and the Local Government Authority, and designed to offer an industry standard allowing investment managers and asset owners to properly compare costs and charges.
ClearGlass Analytics argued that the difference between the fee levels that are publicly available and those arrived at by analysing specific deals and clients is “profound”, contributing to an “inefficient and stagnant market”, the lack of transparency leading to price inflation.
Its report identified three managers — Baillie Gifford, Majedie Asset Management and Wellington Asset Management — as leading the group of 79 included in its database, ranking in the best quartile for both fees and performance.
The report is the first of a series, to be published quarterly, with each subsequent issue focusing on a different asset class. Future reports will look at global active income, active high yield and UK active equities.
The analysis company said it expected to see similar divergences between publicly available pricing and true market pricing in each report.
Dr Christopher Sier, research director at ClearGlass Research, said: “The data reveals the true extent to which perceived costs differ from reality. Anyone basing their procurement, or subsequent value-for-money analyses, upon publicly available data will inevitably be wrong.
“The CTI template is therefore a game changer. Providing a market-wide database that transcends any individual manager’s assessment framework will inevitably help support consultants, asset owners and asset managers to make the best decisions for the end investor.”
Professor Iain Clacher, head of the Centre for Financial Technology and Innovation at the University of Leeds, added: “Transparency is an indispensable competitive advantage and asset owners are now better able to achieve value for money for their beneficiaries. The UK is leading in this space but the opportunity for the sector globally is huge.
“In a world of lower returns, costs become ever more important, and the ability to demonstrate value for money on a consistent basis will drive fund flows to where it is best placed. Through transparency, the sector will be more competitive globally.”
