Greater understanding of fee levels equals greater control
There are many factors which impact the level of investment management fees paid by pension plans. Fee levels depend upon asset class, strategy type, fund size and many other variables. It's important to understand how the market works, as when it comes to negotiating investment management fee levels, better knowledge means more power.
The list below, curated by the Savvy Research team, provides a selection of papers from around the world and across different fund types, all tackling the subject of investment management fees paid by pension funds.
US Pensions: NEPC Defined Contribution Plan & Fee Survey Results
This NEPC paper aims to help employers and plan sponsors understand the pricing and fee structures of their defined contribution (DC) plans. It assesses the changes that have taken place over the last ten years, when NEPC first conducted this survey.
UK Pensions: Investment Fees charged to UK Pension Funds - Survey Results (LCP)
This fascinating 40-page survey from Lane Clark & Peacock examines the fees charged by investment managers, segmented by fund size and asset class. There is growing pressure on fund managers to disclose the true costs of investing. This report shows the areas that require greater transparency.
SPIVA® Institutional Scorecard 2016 - How Do Fees Affect the Active Versus Passive Debate? (S&P Dow Jones Indices, 2016)
S&P Dow Jones Indices is growing its coverage beyond retail mutual funds to also cover institutional managed accounts and the impact of fees on performance. In this paper, the authors discuss three important questions that are crucial to the active vs. passive debate.
Understanding the Cost of Investment Management: A Guide for Fiduciaries
This paper seeks to provide fiduciaries with a better understanding of the nature of the costs paid for the funds for which they are responsible, and to support best practice. Past surveys demonstrate a low level of understanding of costs by foundations and endowments. The paper explores different disclosed and undisclosed types of costs. It explains the derivation of these costs to fiduciaries. It also seeks to help them address well-informed questions about costs to investment service providers.
Australia: Investment fees for institutional investors (Frontier Advisors, 2016)
In this piece, the authors reiterate the most challenging and significant of the current fee issues, propose a number of approaches that might assist the asset owner in getting better value for their money, and highlight recent positive outcomes on fund management fees.
Canada: The High Costs of Canada’s Mutual Fund-Based Retirement System
Canadians manage their savings primarily through mutual funds and pension plans, each of which hold over $1 trillion in assets (2014 figure). Policymakers have promoted RRSPs (Registered Retirement Savings Plans) for the last 20 years as the best option, with much of those personal savings being invested in mutual funds. In this paper, the high fees paid by mutual fund based schemes are examined, and the impact on individual retirement provision is explained.
Dutch pensions: A dissection of investment costs across asset classes (DNB)
This paper examines the relationship between pension fund size and investment cost. The authors analyse a unique dataset of over 220 occupational Dutch pension funds, managing over 900 billion euros in assets. The research reveals that pension funds, on average, have lower annual investment costs by about 7.67 BP if they manage 10x more assets. The dataset goes further and gives a break down of investment costs for 6 different asset classes with regards to management costs and performance fees.
Hedge Funds: What Level of Fees Are Hedge Fund Investors Actually Paying?
This paper by Causeway Capital seeks to shine a light on the true level of fees being paid by hedge fund investors. After accounting for two exposures, the authors find that effective performance fees are considerably substantially higher than 20%.
Private Equity Fees: How Private Equity Abuses Its Limited Partners (CEPR, 2016)
This paper has been authored by the Centre for Economic Policy Research. In it, the authors examine different categories of PE fund fees. They focus specifically on carried interest, management fees, organizational expenses, preferred return and transaction fees.
Determining the reasonableness of retirement plan fees (Vanguard, 2016)
This brief paper by Vanguard explains the fiduciary duties of plan sponsors. It discusses different tools and steps they can use to determine the sensibleness of their plans' fees.