Active Management Fees Fell Further in 2021

Active managers with small-cap mandates and ESG strategies emerged as winners in the battle for fees, according to Investment Metrics.

Illustration by II

Illustration by II

Fees collected by active managers fell last year as managers struggled to beat market returns.

On average, active management fees declined 4 percent in 2021, according to the latest analysis by Investment Metrics, a portfolio analytics company. The report covered 353 managers with mandates greater than $30 million in 2021. Among all investment styles, Investment Metrics said global equity managers “made the most fee concessions,” with the median fee falling 11 percent.

“There were several reasons driving fees down in 2021, including active performance, style, and size of mandates,” said Brendan Cooper, senior research consultant at IM. “Active global equity managers have struggled to beat their benchmarks.”

For both the U.S. and international funds, managers focused on smaller and emerging market companies continued to collect higher fees than large-cap managers. In the fourth quarter, small-cap managers earned a median fee of 75 basis points. That compared to 55.6 basis points for U.S. large-cap managers and 65 basis points for non-U.S. large-cap managers.

Small-cap equity managers also saw the least fee pressure in 2021. For U.S. portfolios, the small-cap manager fees remained unchanged, even as fees fell by 4.3 basis points across the board. Large-cap managers also escaped most of the fee pressure, with a median fee decline of 0.5 basis points. This is likely because such funds had “already renegotiated their fees prior to 2018,” according to Scott Treacy, research consultant at Investment Metrics.


“Overall, fees have decreased over the past three years for active manager equity portfolios,” Treacy wrote in an outlook piece last month. “The active asset manager environment is becoming increasingly more competitive, which has contributed to fee compression.”

Yet despite the persistent downward pressure on active management fees, “managers that are best in class and/or are consistently delivering alpha continue to command higher fees than their peers,” Cooper told Institutional Investor. For example, managers who can properly evaluate risks related to environmental, social, and governance issues could earn more mandates and charge higher fees, according to Cooper. In another IM report, Cooper and his team found that emerging market asset managers who were best at navigating corporate governance risks were the biggest winners last year.

According to last month’s outlook, IM expects active management fees “to stabilize and stop gravitating downward” in 2022.

“While many managers have been able to hold on to assets, significant numbers have also been fired for poor performance,” Treacy wrote. “At this point, high performing managers are able to retain their mandates and charge higher fees across all active product classes. We may even see active managers begin to fight back against active manager fee compression.”