A new report from Mercer claims that the standard 2 and 20 fee model for alternatives is moving gradually toward a 1.5 and 20 model as alternatives asset managers are under pressure to negotiate fees for hedge funds, private equity funds and infrastructure funds.
Mercer, in its 2012 Global Asset Manager Fee Survey, says asset management fees for alternatives have dropped in general due to supply and demand dynamics. Management fees for other types of funds, meanwhile, have remained largely unchanged, while around a third of managers overall have increased their fees.
Most small cap equity strategies have increased fees, except in the U.S., where they tended to decrease. Across all funds, where fee reductions have occurred, the greatest falls have been in equity mandates, the report notes. Retail equity funds tended to lower fees more than institutional and segregated funds.
Canada remains the most inexpensive country or region to invest in, Mercer says, with average median fees of around 0.3%. The U.K. and Europe also ranked on the low end, with average median fees of around 0.4% and 0.5%, respectively. Emerging markets were the most expensive with an average of 0.89%. Management fees for Asian funds have been on the decline in recent years, dropping 0.08% since 2010 to 0.75% in 2012, according to the report.
Mercers 2012 Global Asset Manager Fee Survey analyzed 25,000 asset management products from more than 5,000 investment management firms covering a range of geographies and products, including both pooled and separately managed accounts.
“Given the plentiful supply of good quality active management, the level and structure of active fees has been remarkably resilient to a slowdown in demand, says Divyesh Hindocha, global director of Consulting for Mercers Investments business. As we move from a defined-benefit-based pensions system to a defined-contribution-based pension system, which is much more cost conscious, our hope and expectation is that we see some innovation in this area, as otherwise the demand for active management may well fall off a cliff.
(CG)