Investment-related expenses for public, corporate and Taft-Hartley pension funds as well as endowments and foundations have increased in the past 10 years, primarily because of bigger allocations to costlier alternative investments, according to Callan Associates Inc.
Total investment-related expenses in 2008 increased to 47.3 basis points of total fund assets, up from 35.6 points in 1998, according to Callans Cost of Doing Business Survey for U.S. Funds and Trusts.
External investment management fees made up 88% of total fund expenses in 2008, up from 83% in 1998. Non-investment manager external adviser fees such as for investment consultants and auditors rose to 6% of total fund expense, up 4% from 10 years ago.
Since the last survey in 2004, the total cost of doing business for the funds including investment management fees, external adviser fees, staff compensation and custody costs increased 14%.
The number of survey respondents with allocations to real estate grew to 75%, up from 59%. Although funds with private equity allocations remained constant at 40% between 2004 and 2008, the average allocation to real estate and private equity increased over the four years.
One of the big takeaways (of the survey) is the increase of external investment management fees as more funds move from traditional asset classes into more non-traditional, alternative asset classes that are more expensive, Anna S. Wagner, San Francisco-based research analyst in the published research group at Callan, said in a telephone interview.
Callan surveyed 55 pension funds, not all of which were clients of the firm, Ms. Wagner said. Questionnaires were sent out in September and October asking for June 30 data. Callan has conducted the survey every three to four years since 1998, but with the market collapse in the fourth quarter of 2008, a follow-up survey might be requested by clients, Ms. Wagner said.