New fee arrangements, emerging in response to institutional investors' push to cut costs, could put pressure on revenues of both investment managers and consultants.
Fee pressures on managers have been building in some areas. But recent initiatives seek to change the fee landscape, shifting the burden to managers from investors, and removing investment consultants from the manager selection process.
The question is whether of the initiatives will catch on. Similar web-based efforts by Investor Force Inc., eFrontiers and others in 2000 - which played cupid to investors and managers, and sent managers the bill - fell flat.
New initiatives include:
c Pension Fund Service.com Ltd., Macclesfield, England, which is in the process of selecting consultants to provide manager selection services for a new procurement platform for corporate pension funds. Once appointed, consultants will name managers to shortlists in various equity, bond and alternatives asset classes; corporate funds would pay a fee for the information before selecting a manager from the list, avoiding the need to hire a consultant.
c A program being run by local U.K. government pension funds joining together to select shortlists — known as framework agreements — of investment consultants and global custodians from which all government funds, representing £134 billion ($212 billion), would choose. A similar list of actuaries was selected in June.
c Inalytics Ltd. has begun integrating its quantitative analysis of manager performance and attribution services into a global search platform where the managers — not investors — pay Inalytics to assess their skill. Managers who don't pay for the Inalytics evaluation are free to bid for new business on the platform.
Managers and consultants agree that pension funds are eager to pinch pennies, but shrug off the suggestion that efforts such as these will affect their businesses much. Still, the evolution of new search fee structures is putting off some managers.
“Ten years ago it was extremely rare we would walk away from new business,” said one money management executive who requested anonymity. Now, the executive picks carefully among new searches, depending on the fee process.
For example, the manager doesn't participate in searches led by search consultant bfinance International Ltd., which began ruffling feathers back in 2004 when it introduced its fee model: free for investors, with fees to bfinance paid by managers who win searches (Pensions & Investments, May 31, 2004).