| Asset management fees reflect growing demand for less plain vanilla products |
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| 01/04/2007 | |
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Asset management fees remain one of the more closely watched figures among institutional investors, perhaps as closely watched as the undulations of the stock market. Yet figures remain fragmented, making it difficult to reach conclusions. In order to shed some light on the subject, bfinance analysed 60 requests for proposals (RFPs) in 2006 from a large pool of asset managers. The data reflect a growing appetite among investors to diversify and accept risk in pursuit of higher returns as well as a greater willingness to achieve them by paying a premium for specialised talent. Some noteworthy developments: There were more Fund of Hedge Fund (FOHF) mandates in 2006 than in the past. GTAA made its first appearance in the survey which has been carried out in each of the last three years. Other new entries include Asian property, commodities and currency funds, all of which have experienced significant inflows in recent years. The Investment Support Level of the Goldman Sachs Commodity Index certainly corroborates the diversification trend seen by our mandates. The index was increased from $70bn in 2006 to $110bn earlier this year. bfinance oversaw an £82.5m mandate in commodities during the year for which the average fee was 1.06%. "Our clients who have already invested in GTAA, currency and commodities are looking to further diversify their portfolios," says Olivier Cassin, Head of Product Development and Research at bfinance. "The themes that we are seeing at the moment revolve around infrastructure, timber, equity long-short and 130/30 strategies." While appetite for more absolute return strategies increased in 2006, one should read the results with an important caveat. Deal size in a given asset class can vary considerably. Accordingly, when we take volume into account, changes in year-on-year average fees reflect more stability than the numbers suggest at first glance. The more relevant comparisons are between the different and new asset classes and the more conclusive evidence here is in favour of less constrained strategies and diversification. Pay up for less plain vanilla products Of the six Fund of Hedge Fund mandates, the highest average fee paid was 1.36% for a €20m deal while the lowest was 1.01% for a £100m deal, which was the biggest in the category. These averages do not take into account the performance fees of Fund of Hedge Funds. Meanwhile, the average fee for a currency overlay mandate in a £1bn deal was .13%. The average fee for a £40m GTAA mandate was 1.45%. Of course, size is not the only variable in determining a fee. "The fees are linked to performance targets," says Chady Jouni, an analyst at bfinance. "They also reflect the fact that investors were less risk averse in 2006, increasing allocations to less plain vanilla assets such as GTAA. This was based on their optimistic outlook for the year shaped by strong M&A activity and high levels of liquidity." The average fee for a €50m Latin American equity mandate was .89%, followed by a .85% average fee for a £25m emerging market equity deal. "My spreads are so wide between different asset classes and geographies," says Simon Brooks, head of portfolio implementation at Skandia UK, commenting on the fees he pays to emerging market specialists for access to less liquid markets such as Vietnam. Those fees have been more than compensated for by one of the greatest bull runs in emerging markets. From the end of 2002 through last year, the MSCI Emerging Markets Index returned 240% in US dollars. One may reach the same conclusion after a look at the average fees for European equities. However, the year-on-year spike in fees is exaggerated by a relatively small European equity deal (€40m) which distorted the 2006 average on the upside. Excluding this mandate, the figure is more in line with the .49% average in 2005. Looking at France, the largest mandates were in a category known as money market funds enhanced. There were three such mandates worth €230m from a total of eight French deals and the average fee for the asset class was .27% compared to .18% for money market funds. There were two French mandates valued at €60m in the Fund of Hedge Funds category with an average fee of 1.33%. "Clearly, Fund of Hedge Funds are gaining momentum in France even with corporate treasuries," says Cassin. "They mix them to pure money market funds to get 50 to 100 bps over EONIA, looking to enhance the returns of their cash reserves." VB  |
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Articles of the same Topic : Fees
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Articles of the same Topic : 130/30 |
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