Asset Fees for Most Alternatives Dropping

Asset management fees for most non-traditional asset classes have fallen, following increased scrutiny from cost-conscious investors, according to a report by Mercer.

A Mercer news release about its latest fee survey said, in particular, fees for hedge funds, private equity, infrastructure and real estate have all decreased, while charges for traditional asset classes have varied, with some increases observed in long-only equity and fixed income strategies.

Divyesh Hindocha, Global Director of Consulting for Mercer’s Investment Consulting business, said: “The impact of the financial crisis continues to be felt by companies and investors. Although not universal, subdued investment returns have taken the edge off many alternative asset products. Combined with an increased focus on operational costs this trend has put growing pressure on asset managers to reduce the complexity of their products and lower their fees in the pricey alternatives arena.”

According to Mercer, global emerging markets equity remains the most traditionally expensive asset class category, with median fees averaging around 1% – up from 0.90% in 2008. Small cap equity also continues to be an expensive category with fees averaging around 0.89%. Global and regional equity strategies average 0.70%, while fixed income continues to be the cheapest traditional active asset class with average fees around 0.35%.

With an average fee of 0.68% pooled funds are more expensive than segregated fees across all comparable mandate sizes, Mercer found. There was no change in average fee levels for pooled vehicles between 2008 and 2010 – across all mandate sizes. Average fees for mandate sizes of $25 million have decreased where for mandate sizes between $100 million and $200 million, average fees have increased.

When comparing the data by regions, Canada is the least costly, with average fees of around 0.3%, according to the study. The UK and Australia follow with average fees of 0.46% and 0.47%, respectively. Emerging markets remains the most expensive, at around 0.87%, with Asia-Pacific a close second at 0.83%. Japan, Europe and the U.S. all range between 0.57% and 0.7%.

The study is a bi-annual report on fee data on more than 20,000 asset management products from over 4,000 investment management firms.