Fee pressures are bearing down unevenly in the asset management industry, according to a new research report from Broadridge Financial Solutions.
Alternative investments, private debt, and small-cap equities have offered significantly smaller discounts than traditional credit, government fixed-income, and passive funds over the past five years, Broadridge said in its report. The firm, which tracks more than $25 trillion of institutional assets globally, found that Europe has the lowest median fees, while managers in the Asia-Pacific region charge the highest.
Performance helped prop up investment fees in Asia. For example, Japan’s Government Pension Investment Fund paid Pacific Investment Management Co. ¥4.5 billion (about $41 million) in fees for just two mandates in fiscal year 2016, according to Broadridge. This shows “traditional managers can defy fee pressures if they are able to generate superior performance,” the firm said.
Median investment management fees in the Asia-Pacific region were almost 50 basis points, the report shows, compared with around 45 basis points in North America and around 25 basis points for Europe, the Middle East and Africa.
Among alternative investment managers and riskier asset classes, there’s less competition globally, according to the report. Broadridge found there were “little to no falls” in fees recorded among alternative managers and funds investing in private debt, small-cap equities, and emerging-market stocks.
Meanwhile, fees levied on commoditized strategies such as traditional credit and fixed-income have fallen more than 30 percent, while so-called beta providers are recording fee drops of as much as 37 percent, according to the report. Passive funds that track market indexes provide beta to investors, while actively managed funds attempt to beat them.
“Passive managers especially have placed a huge focus on cutting costs, most recently cutting external index providers in pursuit of lower fees,” Broadridge said.
Emerging debt, high-yield and listed property managers are also seeing significant fee discounts, though Broadridge said those with strong performance can find success in resisting downward pressure.