Institutional investors' expenses have gone down, thanks primarily to lower external money management fees, according to a survey from investment consultant Callan.
The company's 2021 Cost of Doing Business Survey says that among the pension fund, endowment and foundations surveyed between November 2020 and June 2021, the average respondent said 87% of expenses went toward external investment management fees in 2020, down from 93% in 2015, the last time Callan conducted the survey.
The average total of all expenses paid by investors was 54.2 basis points, down from 57.3 bps in 2015. It is the first time the average total has seen a decrease since Callan first started conducting the survey in 1998.
"This is not surprising given the ongoing compression of active management fees, along with the increased usage of passive management," said Ivan "Butch" Cliff, Callan executive vice president and director of research, in a news release announcing the survey results. "The aggregate results, though, mask the major differences in fee trends across asset owner type and size, which is outlined in the survey."
Average total expenses for funds with less than $2 billion in assets under management was 56.1 bps, while funds with between $2 billion and $10 billion had an average 43.8 bps, and funds with more than $10 billion had an average 53.6 bps.
Callan said the higher average for large plans' greater usage of alternative asset classes, which charge higher fees, for the higher average.
Overall, the average external management fee was 43.2 basis points, down from 45.1 bps in 2015. Large funds paid 51.5 bps on average in 2020, medium funds paid 40 bps and small plans paid an average 42.5 bps.
The one expense that increased in the five years since the last survey was conducted was the cost of investment-related staff compensation, which was an average 4.8 bps in 2020, up from 3.9 bps in 2015.
Callan's previous Cost of Doing Business surveys were conducted in 1998, 2002, 2005, 2009, 2013 and 2016.
For this latest survey, Callan surveyed 163 institutional asset owners with a combined $975 billion in assets.