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Private asset management fees rise as pension schemes de-risk

Fees_calculatingAsset management fees for private markets portfolios have increased as pension schemes continue to de-risk, according to new data.

Lane Clark & Peacock's (LCP’s) 2022 Investment Management Fees Survey found that on a £50 million investment mandate, average fees across a number of private markets asset classes increased from 2019, when it last conducted the research, which it attributed to rising demand for certain asset classes.

LCP reported that long-lease real estate fee rates rose by 0.1% per annum, equivalent to £50,000, and infrastructure funds saw similar increases of 0.08%, or £40,000 per annum.

LCP’s survey found that among core assets, fee consolidation is levelling off. Asset classes, such as corporate bonds, saw “significant reductions” in average management fees compared to 2019.

The average active corporate bond management fee fell by the equivalent of £35,000 per annum from 2019, on a £50 million investment mandate, while asset-backed securities charges declined by 0.06% and UK equity by 0.05%.

Matt Gibson, investment partner at LCP, explained: “Pension schemes make up a significant cohort of institutional investors. As they mature, we’ve seen trustees de-risking their asset portfolios by moving away from equities and towards asset classes which are seen as lower risk sources of return and income generation, such as private direct lending, long lease property and infrastructure.”

He added: “Consolidation is one way we’ve seen managers reducing costs. Recent mega-mergers have been a sign of this trend. As fewer managers compete to provide services to institutional investors, negotiating power is returning to investment managers, leading to a levelling-off of fee rate reductions.”

However, global equity funds saw average fee rates increase 0.07% (equivalent to £35,000) on the same mandate.

LCP also compared fee rates between institutional and private investors and found that individual investors pay “notably more” than institutional. Out of 49 funds available to both types, 92% of them cost more for individual investors than institutional.

Average fees were higher for individual investors across all asset classes. For instance, total ongoing charges for a global active equity mandate were 0.2% higher per annum on average, and 0.4% higher for a multi-asset mandate, according to the survey.

Gibson said: “Institutions, consultants and fiduciary managers have gained scale by negotiating fee rates on behalf of clients. Our survey raises the question of why platforms don’t do a similar job of negotiating fee rates for individual investors.”

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