Money managers that achieve consistent returns and outperformance tend to adopt a below-average fees, said a new study by consultant bfinance.
The consultant focused on 3,200 responses during the search process from 650 money managers to more than 100 RFPs, looking at the issue of fees.
The study found that active managers that showed a genuine capability to outperform their benchmarks over time do not command higher fees, but rather are identical in pricing to managers whose returns are below their benchmarks.
Bfinance studied fees by allocation size and asset class. A top-quartile money manager charges 0.51% on average for a €100 million ($113.4 million) global actively managed equities allocation, before negotiation. A third-quartile manager charges 0.65%, bfinance found. The average fee was 0.57%.
The consultant also found that economies of scale greatly affect fees. Data from mainstream active, long-only asset classes showed that charges on allocations of €400 million decrease by 15%, compared with €100 million allocations.
Negotiation by institutional investors can also reduce the fees, with an average 20% reduction in management fees quoted in the first stages of a search.
“Counterintuitively, the correlation between high-quality asset management and fees is weak,” said Ian Shea, director and head of equities, public markets, at bfinance, in a statement accompanying the study. “The most adept managers are also those that are most inclined to be competitive on fees and inclined to work with asset owners to find creative performance fee solutions. If negotiations are managed well, it seems you can have your cake and eat it, too; significant savings can be achieved.”
Executives at bfinance were not available to comment further by press time.
