The need for higher net-of-fee investment returns is driving more asset owners to consider internal management for the first time or for a greater portion of their portfolios.
Just doing the math, comparing the cost of external management vs. internal management is enough to persuade many pension plans to review operations to gauge their ability to manage some portion of their portfolios internally.
Calculated on the basis of investment cost, a CEM Benchmarking Inc. survey of 19 large pension funds showed an average expense of 46 basis points for external money management vs. eight basis points for internal management.
Calculated in terms of investment returns, 3.6 basis points of additional performance resulted from every 10% increase in assets under internal management, according to CEM research that benchmarked the pension funds from North America, Europe, Australia and New Zealand, which ranged in size from $12 billion to $314 billion.
“Interest is definitely picking up within our global client base. A lot of other funds are looking at what they call the Canadian model,” which features a high percentage of internal management, said Jody MacIntosh, a CEM vice president based in the firm's Toronto headquarters.