On the go: The average fee for an active global equity mandate has fallen by 11 per cent since 2017, according to consultancy LCP, as competition from low-cost index tracking vehicles sees costs improve across most asset classes for institutional investors.
The average annual fee for a £50m investment mandate is now 0.65 per cent, compared with 0.73 per cent in 2017 – a saving of £40,000 a year. However, corporate bonds fees increased by £35,000 a year for a £50m investment mandate.
The apparent collapse in charges is even more marked over the past decade. LCP’s analysis estimates that a typical £500m UK defined benefit pension scheme has seen total investment managers’ fees fall from 0.39 per cent to 0.36 per cent a year since 2010, with a saving of £140,000 a year. This is partly as a result of falling allocations to active equity mandates.
Other notable fee reductions included multi-asset diversified growth funds, multi-asset credit, liability-driven investment strategies and passive global equity mandates.
Listed infrastructure and active global equity are two asset classes where the variation in reported transactions costs from managers is wide, illustrating the need to ask managers to explain and justify incurring these costs.
Transaction costs still a problem
Transaction costs, formerly hidden under a cloud of mystique, must now be revealed by law. For the average active global equity pooled fund, transaction costs add 25 per cent to the headline annual management charge, according to LCP.
Across a broader range of asset classes, investors pay an average of 0.15 per cent of assets in transactions costs each year, around 31 per cent of the AMC.
Despite regulation changes and initiatives to provide better transparency, managers still fail to provide good transaction cost data. For the LCP fee survey, managers provided the full data requested for only 170 of the 677 products included in the survey.
Matt Gibson, LCP partner and head of investment research, commented: “Falling investment manager fees allow investors the opportunity to renegotiate their fees to the new market level. It is important to remember that reduced costs do not always result in value for money – fees and costs should be considered against the value the investment manager creates.”
He added: “A change in regulation at the end of 2017 allows for accurate and comparable analysis of transaction cost data for the first time in the history of the survey. We find that transactions costs vary widely in some asset classes and can be a significant part of the total cost of investing.”
