New capabilities and expanded data set a new standard for institutional management fee analysis.
February 5th, 2020
By Blake McLaughlin
There has been an increased focus on management fees in recent years and rightly so. Fee data is of critical importance to the institutional investing community, not only for investment consultants and asset managers, but especially for asset owners, whose need for certain levels of portfolio returns can be significantly impacted by management fees. Fee data is required to calculate and report on individual portfolio performance for all investments of plan sponsors on a gross and net of fee performance basis. Hence, it’s becoming an increasingly important factor in manager evaluations. However, getting transparency into “actual” vs “stated” fee data has traditionally been quite difficult; if not impossible.
But, times are changing. Today, there is an increasing focus on data and transparency from regulators and investors on a global scale — especially as it pertains to fees – and this is a trend that market participants cannot ignore. Management fees will be under continuous pressure amid this sea change towards greater transparency and comparability. And innovative technologies like Fee Analyzer are providing unparalleled visibility into actual management fees being paid by institutional investors.
With the access to the right technology, this new world of openness surrounding fee data provides opportunities for all constituents in the institutional investment channel.
For investment consultants, this means better and more accurate insight when advising clients who are looking to reallocate portions of their portfolio to new managers. For different investment strategies, consultants can gain heretofore unseen insight into their firm’s dispersion of fees among asset managers and see how their firm compares to the broader market. It means they can give their clients a better understanding of the performance level of their portfolios vs. the fees being paid. Access to actual fee data also benefits the research consultants do on behalf of clients by delivering more value through actionable advice around management fees and their impact on performance objectives.
Further, with many investment consulting firms actively growing their OCIO services, access to actual fee data becomes an even more critical data point when they negotiate fees on behalf of their clients.
For asset managers, the transparency provided to consultants and asset owners into actual management fees may appear threatening, but in reality managers can leverage this data to more effectively compete in the marketplace. They can – and should – use this data to better understand the competition, benchmark their firm to the market, more effectively price new products, and serve as a reliable data point during fee negotiations.
Greater transparency into post-negotiated fees means that managers will be able to more effectively position fee mandate proposals to win mandates. Managers can worry less about losing deals because fees were not set at an appropriate range. More importantly, managers can be more confident they are not leaving basis points on the table. Comprehensive actual fee data now available in products like Fee Analyzer can give managers more confidence in bidding on mandates by using real, empirical fee data as opposed to anecdotal information.
As we’ve seen in the retail channel, the increased focus on management fees is real and will influence how the institutional investment channel’s push for fee transparency accelerates. In 2020 and beyond, asset managers can expect institutional investors to push harder for transparency around actual fee data.
Luckily, new innovations in technology are changing the landscape and helping asset allocators, asset managers and asset owners gain greater insight into fees. I’ll share more about how those exciting new capabilities are helping advance the industry in my next post. Until then, please reach out and let me know your thoughts on the ever-changing world of fees.
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