Fees cut on ESG and impact fund strategies, study reveals

Institutional asset management fees have been cut significantly across a number of asset classes but particularly for ESG and impact strategies, according to a study from investment consultancy bfinance.

Pricing compression is evident in hallmark strategies such as ESG equities and renewable energy infrastructure, the study found, while newer strategy types such as impact equities and article 9 funds are also offering substantial discounts.

The median fee on an active global equity strategy with a €100 million mandate and ESG requirements has decreased by 14% since 2016.

As the ESG space began to mainstream, a swathe of asset managers entered to meet the demand, resulting in heightened competition for assets and a refinement of pricing.

Elsewhere, management fees for renewable energy infrastructure strategies have fallen by 8% since 2016 and performance fees have also declined.

US high yield strategies saw median fees decrease by 15% since 2017, while fees for blended emerging market debt strategies dipped by 10% in the same period.

Multi-sector fixed income also saw its median fee decrease by 15% since 2017, while fund of hedge fund fees declined sharply, falling by 42% between 2010 and 2019, though the downward trend appears to have slowed.

Investors can benefit from a degree of fee erosion for ESG strategies, according to bifinance. Some ESG-related sectors are now becoming relatively mature, a period often characterised by narrower dispersion in fee quotes.

Active global equity managers that integrate ESG considerations are now quoting significantly lower fees to potential clients than 5 years ago. The median fee quoted by managers on €100 million mandates has declined by 14% since 2016, from 57 basis points (bps) to 50bps.

The study also found that the rapid reduction in the number of active global equity strategies that do not integrate ESG considerations has negated potential ESG pricing premiums in this asset class.

© 2021 funds europe

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