Asset Management Fees for Non-Traditional Assets Under Pressure, Mercer Finds

Global emerging markets equity remains the most traditionally expensive asset class category, with median fees averaging around 1.0%, up from 0.90% in 2008. Small cap equity also continues to be an expensive category with fees averaging around 0.89%. Global and regional equity strategies average 0.70%, whereas fixed income continues to be the cheapest traditional active asset class with average fees around 0.35%.

"The observed fee increase for long-only fixed income strategies is somewhat surprising given that there is no shortage of high-quality strategies in this area,” Hindocha said. “Fees charged for niche equity strategies such as small cap and emerging markets continue to be higher than for most fixed income strategies, reflecting the value-added potential of the mandates."

With an average fee of 0.68%, pooled funds are more expensive than segregated fees across all comparable mandate sizes. There was no change in average fee levels for pooled vehicles between 2008 and 2010 — across all mandate sizes. Average fees for mandate sizes of $25 million have decreased whereas for mandate sizes between $100 million and $200 million average fees have increased. Segregated fees have increased by on average 0.7 basis points, with the larger mandates increasing by slightly more.

"One explanation for the increase in segregated fees is that managers are using fees to ration out demand for those asset classes where there are capacity issues," according to Hindocha.

When comparing the data by regions Canada is the least costly, with average fees of around 0.3%. The United Kingdom and Australia follow with average fees of 0.46% and 0.47% respectively. Emerging markets remains the most expensive, at around 0.87%, with Asia-Pacific a close second at 0.83%. Japan, Europe and the United States all range between 0.57% and 0.7%.