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bfinance analysed the responses of over 650 investment managers to more than a 100 tenders in conducting the research, evaluating the data of close to 3200 responses. The study is the most comprehensive to date on the topic of final fee arrangements versus those initially quoted and the findings provide strong evidence that sophisticated institutional investors have considerable scope and ability to negotiate lower fees and best value from asset managers, irrespective of investment strategy.

The key findings of this year’s study show:

· Fees diminish significantly as assets increase. Data from mainstream active long-only asset classes indicate that fees on mandates of €400m decrease by 15% compared to €100m mandates

· Active managers showing a genuine capability to outperform their benchmarks over time do not ask for higher fees. In fact, their price positioning is identical to that of managers less able to generate the best performance over the long term

· The level of management fees quoted in the first stages of a tender procedure is not set in stone. Rebates achieved through negotiation represent on average 20% off the initially quoted price

· Alternative methods of remuneration based on performance fees are more frequent and better aligned with the interest of investors than they used to be.

Overall, bfinance found that fee levels have remained consistent over the past three year period since bfinance last conducted this survey with the single exception of “low vol” strategies where fees have declined as investment product offerings in this asset class have proliferated. In a growing number of mandates, managers are happy to propose alternative methods of remuneration based on performance fees with this trend being strongest, unsurprisingly, with equities strategies.

Emmanuel Lechere, Head of the Market Intelligence Group at bfinance, commented: “The dynamics of setting management fees depends upon a host of factors that have little to do with the functioning of a competitive market, where pricing power would benefit the best managers most efficiently. It is therefore crucial to concentrate on the capacity of each manager to create value, before entering into negotiations on fees with the best managers at a later stage in the RFP process.”

Ian Shea, Head of Equities at bfinance, said: “Counter intuitively, the correlation between high quality asset management and fees is weak. The most adept managers are also those that are most inclined to be competitive on fees and inclined to work with asset owners to find creative performance fee solutions. If negotiations are managed well, it seems you can have your cake and eat it too; significant savings can be achieved.”
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