Insights into the business of investing.

Will institutions pay 53bps a.m.c for active global equity?

Will institutions pay 53bps a.m.c for active global equity?

77% of Chief Investment Officers at the world’s largest pension, endowment and sovereign wealth funds have said negotiating hard with external fund managers is their favoured way of reducing their costs*. 60% of investors with more than $75 billion in assets prefer a performance-based structure with minimum management fees.

Investit has modelled this for global equity fund managers **. A large client may ask them to accept base fees of 8bps, which is at the top end of the fees charged by a global equity passive fund. If the manager targets and delivers regular out-performance of 2% then they will need performance fees of 25% to reach the 58 bp fee rate that they have been getting for large global equity portfolios.

The question then is, what revenue base (and therefore cost base) should the firm be based on. Is it reasonable to assume that a certain proportion of strategies will meet their performance targets, or should the core cost base only come from contracted and assured incomes?

Fund managers will need lower cost bases to take business from the world’s largest buyers of fund management services. Firms need to understand the cost effectiveness of their investment and operational platforms in order to improve profitability. Investit provides data driven analysis to help firms plan for a sustainable future.

* Third annual www.top1000funds.com/Casey Quirk Global CIO Sentiment Survey
**Fee rates from Lane Clark Peacock Investment Fees Survey 2015

View all snackable stats
What's your Challenge?
Find out how we can help
64% of European funds are in net outflow

64% of European funds are in net outflow

Sales of long term funds (not money market) added €97bn to the assets of European fund managers in 2016*. This is not a great outcome; in 2015 the figure was €300bn. But this weak figure obscures even worse news for most managers. First, more than two thirds of net sales went to BlackRock, Intesa, Nordea, Vanguard or Union Investment. Some hundreds of fund managers shared €30bn of net sales. Second, 64% of funds (by number) are in net outflow. That doesn’t help in a business that is supposed to reward scale.

 

Firms need to be understand the cost effectiveness of their investment and operational platforms in order to improve profitability. Investit provides data driven analysis to help firms plan for a sustainable future.

*Broadridge

View all snackable stats