Independent investment consultancy bfinance has identified a decline in institutional asset management fees in recent years, particularly across ESG and impact strategies.
For active global equity strategies with ESG requirements, the median fee for a €100 million ($156 million) mandate was found to have fallen 14 per cent since 2016 to 50 basis points.
“More managers have entered the space through a period of ‘ESG mainstreaming’, resulting in heightened competition for assets and a refinement in pricing,” bfinance said.
A rapid reduction in the number of active global equity strategies without ESG integration had negated any potential pricing premium for ESG, according to bfinance.
The firm found that the median fee for global renewable energy infrastructure strategies had fallen 8 per cent since 2016 while performance fees had also dropped.
“As the renewable energy infrastructure sector has matured and developed, investors have benefitted from some significant fee reductions – contrasting with stable infrastructure pricing in other sectors,” the firm said.
Funds with sustainable investment objectives under the EU’s Sustainable Finance Disclosure Regulation, or “Article 9” funds, were found to charge a premium for fees compared to other strategies, but almost 30 per cent of managers were offering a discount upfront.
“In the light of investors’ growing interest in ESG and impact strategies, it is particularly interesting to see some very significant reductions in the fees that managers are quoting for clients,” said bfinance head of investment content Kathryn Saklatvala.
“We will be keenly watching how pricing evolves for some of the more nascent sectors, such as Article 9 funds and Impact Real Estate, where there is more uncertainty around what an appropriate fee should look like.”
Outside of ESG-related strategies, bfinance said that median fees for US high yield strategies had fallen 15 per cent since 2017.
Fees for blended emerging market debt strategies were found to have decreased by 10 per cent while fees for multi-sector fixed income strategies dropped 15 per cent.
Fund of hedge fund fees appeared to no longer be in decline following a 42 per cent fall between 2010 and 2019, according to bfinance.
The firm said it did not find evidence of falling fees for direct lending strategies, which reflected the “significant increase in demand for this asset class and the reduction in the number of managers”.
Fees for private markets strategies overall were found to have remained “remarkably resilient”.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
