Pension schemes are calling on investment managers to cut their fees, according to a survey by bfinance.

The organisation surveyed institutional investors and asset managers across ten countries, including the UK, on their sentiments regarding fees and performance. Two surveys were conducted, on fee levels and perceived value for money offered by investment managers to investors.

"The results indicate that pension funds believe investment management fees are too high and need to come down, and a majority of managers seem to agree," commented David Vafai, CEO at bfinance.

Schemes disenchanted with fee levelsNinety-six per cent of respondents across the regions surveyed said they believe they get value for money from their mangers with passive equity investments, rating this as good or fair. However, the worst performing equity class when it comes to investor satisfaction is GTAA, with 86 per cent concluding that this is poor value for money, followed by Fund of Hedge Funds (FoHF) with 60 per cent of votes going to poor value.
However, despite these feelings, only 44 per cent of the investment managers surveyed believe that fees may decrease.

Pension funds in general decided that hedge fund and FoHF fee levels need to be reduced, and 77 per cent of respondents said that their first priority is for lower base fees, followed by 52 per cent who said they would like to see performance fees reduced. This number also wants to see an increase in hurdle rates. Finally, 65 per cent of investors said that these performance fees should be calculated over a four- or five-year period.

Oliver Cassin, managing director of research and development for bfinance, said; "Clearly, investors are still willing to pay performance active fees for beta or for 'luck.'"
Managers of hedge funds agreed that fees were likely to decrease, and said that they expect the median level for base fees for FoHFs to drop by nine per cent to 95bps, while the median level of performance fees for hedge funds is expected to decline from 25 per cent to 13 per cent.

"Although the study indicates disenchantment with the industry in general, and disenchantment with Fund of Hedge Funds and GTAA manager comes out particularly clearly, the study also rather paradoxically suggests that allocations to FoHFs, as well GTAA, Infrastructure, Real Estate, and Private Equity FoFs are set to increase in the future," added Vafai.

- Pensions Age January 2009

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