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Mercer Issues Global Study of Institutional Asset Management Fees

2006-11-29 12:33 2165

SINGAPORE, Nov. 29 /Xinhua-PRNewswire/ --

-- Despite the competitive nature of the market, fee levels for the

traditional asset classes have remained stable since 2004.

-- Highest fees are charged for the more complex asset classes such as

global smallcap equity and emerging market equity. These asset

classes are also richer sources of alpha.

-- Fees for equity strategies vary significantly between regions; Asia

has the highest fees while Canada has the lowest.

-- Small cap equity products are more expensive and the limited capacity

of these managers means fees decline less rapidly as placements grow.

Mercer Investment Consulting's latest global study of institutional

management fees comes at a time when many believe investors are in an

environment of lower expected investment returns. Investment management

fees can be a material drag on performance in such an environment.

According to Mercer's study, which covers 164 traditional and

alternative institutional investment strategies, fees are highest in classes

where asset managers have the most potential to outperform. Emerging

markets equity is the most expensive regional asset class, with median fees

for a $100m segregated mandate at 0.88% or 88 basis points (bps), decreasing

slightly to 83 bps for a $250 million fund.

In contrast, fees for traditional active fixed income are markedly

lower. Fees across the regions hover around 25 bps, with less paid for

government products and more for high-yield bonds and credit-driven

products. Index-based fixed income strategies are between 15 bps and 30 bps

cheaper than active fixed income strategies, depending on account size.

Fees have remained relatively stable since 2004 when Mercer last

published its study, with Asia ex Japan, Europe ex UK and global fixed

income becoming marginally cheaper to access, and Europe (inc UK), global

value, global growth, UK equity and US large cap becoming slightly more

expensive.

"Given that we are in an environment of lower expected returns, albeit

one with a 'dash for alpha', we believe investment managers will find it

hard to justify above-average fees unless they have demonstrable competitive

advantages which they articulate clearly," said Divyesh Hindocha, worldwide

partner and global director of consulting at Mercer Investment

Consulting. "A comprehensive review of performance should include cost

analyses on an absolute basis and also relative to asset class peers. The

data from our study provides the basis for such an informed analysis."

For large cap/ all cap equity products, Canada was by far the cheapest

at around 30 bps. Australia, New Zealand, US and UK averaged around 40 bps

to 50 bps, while Asia, Europe, Japan and global averaged 50 bps to 70 bps.

The most expensive was the emerging markets equity category at around 90 bps.

Small cap equity products are more expensive, with Canadian, global and

US small caps commanding a premium of 25 bps to 30 bps, compared to Europe,

Japan and the UK, where the premium ranged between 15 bps and 20 bps. The

limited capacity of small cap equity managers means that fees decline less

rapidly as placements grow.

About the study

Mercer's analysis is based on fees as they are listed on Mercer's Global

Investment Manager Database ( www.MercerGIMD.com ). Mercer collects data

from more than 2,800 firms in eight regions including the UK, Europe, US,

Canada, Asia, Japan, Australia and New Zealand. The study covers 164

mandates in traditional and alternative asset classes around the world, and

more than 15,000 strategies.

Copies of Mercer Investment Consulting's latest Global Investment

Management Fee Survey can be purchased at

www.merceric.com/GlobalFeeSurvey . The cost is US$2,000. The study is

intended for use as a reference when assessing investment management fees.

Investment performance plays an important role in selecting an appropriate

investment manager. Fund fiduciaries evaluate fees in an effort to find the

most cost efficient, outperforming investment managers. Investment managers

likewise engage in fee analysis to determine their standing relative to

competitors.

Mercer Investment Consulting is a leading global provider of investment

consulting services, and offers customized guidance at every stage of the

investment decision, risk management, and investment monitoring process. It

has been dedicated to meeting the needs of clients for more than 30 years,

and works with the fiduciaries of pension funds, foundations, endowments and

other investors in some 35 countries.

Mercer Investment Consulting is a unit of Mercer Human Resource

Consulting, an operating company of Marsh & McLennan Companies, Inc. (MMC).

MMC lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific

and London stock exchanges.

Contacts:

Jaquilin Ang

Regional Marketing Leader

Asia Pacific

Tel: +65-6327-3420 / +65-9642-4998

Email: jaquilin.ang@mercer.com

Garry Hawker

Regional Business Leader

Mercer Investment Consulting, Asia

Tel: +65-6327-3519

Email: garry.hawker@mercer.com

Source: Mercer Investment Consulting
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