Alternatives hit by ‘material’ fee drop

Consultancy house Mercer points out in a survey that asset managers in the alternatives space have the distinction of operating in “the only asset class that has experienced a material drop in asset management fees,” the firm said in a statement.

Mercer blames “supply and demand dynamics” for the declining fees in the alternatives space, highlighting that asset managers in infrastructure, private equity, and the hedge funds space are under pressure to revise fees downwards.

“What was once a ‘2 and 20’ industry standard continues to move toward ‘1.5 and 20’ as supply and demand dynamics have led managers to be more flexible in negotiating fees,” Mercer states.

The consultancy analysed more than 25,000 asset management products across 5,000 firms. It found the majority of managers did not change their fee structure, although about a third of managers have increased fees. Besides the alternatives space, equity mandates have experienced the biggest drop in fees, especially retail funds.

When it comes to regions, Mercer finds Canada to be the cheapest region in which to invest, with average fees of around 0.3 percent, followed by the UK and Europe, where fees average, respectively, 0.4 percent and 0.5 percent. Asset managers operating in emerging markets charge the most fees, with an average of 0.89 percent standard in these countries/regions.