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LCP Investment management Fees survey 2015
2015 sees more pressure than ever on investment managers to disclose the true cost of investing. Our fifth fee survey looks at the fees investment managers are charging and highlights where greater transparency is still needed.
This is the fifth edition of the Lane Clark & Peacock LLP (LCP)
Investment Management Fees Survey. It provides an in-depth analysis of
investment management fees and related fee issues.
In total, our survey covers 45 separate asset classes, representing all of the
main asset classes invested in by UK pension funds.
LCP is a leading investment consultancy at the forefront of advising
companies and trustees on investment strategy, investment managers and
related issues.
We would like to thank the following people from LCP who have made this
survey possible:
For further information about investment management fees and LCP’s
investment manager research please contact Mark Nicoll, or the partner who
normally advises you.
For further copies of the report, please contact Nelly Geudin on
+44 (0)20 7432 6710 or email [email protected].
This report may be reproduced in whole or in part, without permission,
provided prominent acknowledgement of the source is given. Although
every effort is made to ensure that the information in this report is
accurate, Lane Clark & Peacock LLP accepts no responsibility whatsoever
for any errors or omissions, or for the actions of third parties.
The purpose of the report is to highlight the investment management fees
payable across different asset classes. This report and the information
it contains should not be relied upon as advice from LCP. Specific
professional advice should be sought to reflect an individual pension
fund’s circumstances.
View a full list of our services at www.lcp.uk.com
© Lane Clark & Peacock LLP March 2015
22
Jeremy Dell
Beth Dunmall
Olivia Hendry
Tamara Markovic-Aksoy
Mark Nicoll
Rebeccah Robinson
Kate Sinclair
Rebecca Stanton
Ellen Wallace
Ken Willis
333
LCP Investment Management Fees Survey 2015
p4 Foreword
p8 1. Key findings
p10 2. analysis of feesp12 2.1 The mist is clearing, but there’s still not full transparency
p14 2.2 Being informed allows investors to negotiate better
p14 2.3 Retaining clients is more important than delivering good performance
p16 2.4 It’s a competitive market, with many players vying for the same business
p17 2.5 Everyone knows transaction costs can be high, so what’s the problem with disclosing them?
p18 3. DC: additional charges within DC platforms are highest when offering active funds
p22 4. next steps for pension scheme trustees
p23 5. appendicesp24 5.1 Asset management charge details by asset class
p40 5.2 List of respondents
LCP Investment Management Fees Survey 2015
Foreword4
For both DB and DC pension arrangements, investment management fees are more in the spotlight than ever.
Mark NicollPartner, LCP
LCP Investment Management Fees Survey 2015
Foreword
In this survey we take a look at how the landscape for investment costs
has evolved since our first fee survey in 2010 and the progress investment
managers have made towards revealing the true cost of investing with them.
For both Defined Benefit (DB) and Defined Contribution (DC) pension
arrangements, investment management fees are more in the spotlight than
ever. On the next page we have shown some of the many initiatives and
reports on fees and charges over the last 12 months. Most notable is the
confirmation that, from April 2015, a charge cap on member-borne fees of
75 basis points pa for the default investment strategy for DC schemes will
come into force.
Our survey contains an in-depth analysis of the fees charged by investment
managers. We have also included fees charged by DC investment-only
platform providers for selected funds. We highlight a number of the key
issues for you to consider. Our survey can be used as a reference document
for:
� benchmarking existing manager fee arrangements;
� comparing fees for new investment manager appointments; and
� negotiating fee levels.
Welcome to our fifth survey on investment management fees.
Mark Nicoll
5
Fore
wo
rd
LCP Investment Management Fees Survey 2015
2. Analysis of fee data6
The spotlight on investment management fees has intensified.
4. may 2014UK Government issues consultation on cost savings for
the Local Government Pension Scheme.
Of the estimated savings £420million pa would be
achieved by switching all listed assets to passive
management.
6. november 2014The Financial Services Consumer Panel publishes
its research and findings “Investment costs – more
than meets the eye”. “The full costs incurred by
consumers when making long term investments are
not consistently and comprehensively defined, nor
understood”. The FSCP supports a single investment
management charge, which incorporates all costs and
expenses of the fund, including transaction costs.
8. December 2014The Independent Project Board issues a report of its audit
of the charges in legacy DC pension schemes.
£26billion in legacy pension schemes had charges above
100 basis points pa, with nearly £1billion exposed to
charges over 300 basis points pa.
9. January 2015UK government debates non-disclosure agreements
between pension schemes and fund managers and delays
introducing legislation. Despite cross-party support in the
House of Lords further consultation on this topic is now
the next step.
10. February 2015UK government confirms the governance requirements for
reporting charges and costs by DC pension schemes.
Accepting there are some hurdles to be overcome, it is
also a consultation by the DWP and FCA on how costs and
charges may be reported in a standardised, consistent and
comparable format across providers.
7. november 2014In a report entitled “Heads we win, tails you lose”,
academics from Cass Business School say that a
sweeping review of the charging structure of UK funds
is required. The majority of investors would prefer
symmetric fee structures where fund managers and
their clients share both the outperformance and the
underperformance of their funds.
3. may 2014The Pensions Institute publishes a discussion paper “On the
Disclosure of the Costs of Investment Management”.
The author concludes that “no good reasons have been put
forward for why all the costs of investment management…
should not ultimately be fully disclosed”.
2. may 2014Financial Reporting Council accepts Investment
Management Association’s proposal to report all the
dealing costs and stamp duty when an investment
manager buys and sells assets in a fund.
All costs of investing to be reported in a comprehensive
and simple pounds and pence per unit figure every year
effective April 2015.
5. June 2014The FCA introduces new rules governing brokerage commissions:
fund managers can only charge underlying clients (by deduction
from the underlying fund) for research through brokerage
commissions if that research is original and has a meaningful
impact on investment decisions.
These rules set out what is acceptable use of brokerage
commission: in particular paying for speaking to managers at
companies where they have invested or could do in future is
prohibited.
1. march 2014The DWP announces charge cap of 75 basis points pa for default
strategies of DC auto-enrolment schemes from April 2015.
The focus on charges for DC scheme members increases. For
some schemes where the member charge includes administration
costs, default strategies have had to be redesigned.
2015
2014
6
0.75% paCharge cap for default strategies of DC
auto-enrolment schemes from April 2015.
£26bnIn legacy pension schemes had charges
above 1% pa, with nearly £1billion exposed to
charges over 3% pa.
7LCP Investment Management Fees Survey 2015
2. Analysis of fee data
ana
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e d
ata
With so much scrutiny on investment management fees, it’s disappointing that there are still some managers that are unable, or unwilling, to disclose details of the indirect charges that affect their clients.
Ken Willis
Partner LCP
7
the
spo
light
on
inve
stm
ent
fees
ha
s in
tens
ified
8 LCP Investment Management Fees Survey 2015
1. Key findings
£200,000Estimated increase in the
annual fee paid for the
management of a £50million
equity mandate over the five
years to 31 December 2014.
20%Amount by which some
global equity, emerging
market equity and diversified
growth fund managers have
reduced their headline annual
management charge over the
last five years.
annual management Charge (amC)
The headline quoted annual fee rate
applied to the value of assets under
management. The AMC is often quoted
in the form of basis points per annum
(bps pa). A fee of 50 bps pa (or 0.5%
pa) means that each year the manager
would earn £5,000 for every £1million
of assets managed.
Key finding
The mist is clearing, but there’s still not full transparency
Having reported a significant improvement in the number of investment
managers who provided details of indirect costs in our 2013 survey, there
still remains a minority of managers (17%) that are unable, or unwilling, to
provide full disclosure of indirect costs. With so much pressure to disclose
true costs, these key industry players are jeopardising the whole industry’s
reputation.
additional findings
� retaining clients is more important than delivering good performance
Pension scheme asset values have increased markedly since the
depths of the global financial crisis. As a result fees paid to investment
managers, most of which are based on a fixed scale applied to the value
of assets managed, have increased well ahead of the rate of inflation.
For a typical global equity mandate of £50million, we estimate that the
annual fee paid to a manager tracking the market would have increased
by around £200,000, over the five years to 31 December 2014. This
compares with an increase of only £90,000 if the annual fee for the
same mandate had increased in line with the Retail Prices Index. Even
a manager underperforming by 200 basis points pa over the same
period would have seen an above-inflation increase in fees. This form
of fee basis results in a poor alignment of interest between investment
managers and their clients.
� It’s a competitive market, with many players vying for the same business
Investment management fees vary widely for different mandates and
within asset classes, giving investors significant opportunity to negotiate
on fees. There is evidence that this competition has resulted in lower
fees for some mandates. For example, over the last five years, the
majority of global equity, emerging market equity and diversified growth
fund managers have reduced their headline annual management charge,
in some cases by as much as 20%. In contrast, the majority of UK
property, corporate bond and core UK equity managers have increased
their fee basis over the last five years. That’s perhaps not so surprising
given the increased demand for some mandates, but in the case of core
UK equities this increase probably also reflects the reduced number of
investment managers offering this form of mandate.
9LCP Investment Management Fees Survey 2015
1. Key findings
Key
find
ing
s
20 bps paExtra charge investors may
be paying to access an active
fund through a platform
compared with going direct to
the manager.
50%Respondents to our survey
who still didn’t provide any
information on the level of
transaction costs that they
incur when managing client
portfolios.
transaction costs
The costs for buying and selling
investments, which includes broker
dealing commissions and taxes where
relevant, eg stamp duty on UK equity
and property transactions.
� everyone knows that transaction costs can be high, so what’s the problem with disclosing them?
Even though best practice guidelines state that investment managers
should provide transaction cost information to their clients, around
half of the respondents to our survey didn’t provide any information
on the level of transaction costs that they incur when managing client
portfolios. The 50% that did respond is an improvement on last time’s
survey, when just 30% provided transaction cost information. However
that’s still not good enough.
� additional charges within DC platforms are highest when offering active funds
Many trust-based DC funds now invest through investment platforms,
providing an ease of access to a wide range of manager funds. Our
analysis shows that investors pay very little for this access when
investing in passive index funds, but that the costs can be substantial
when active funds are selected. The main reason for this seems to be
that passive funds are very popular for DC funds, particularly if they form
part of a default.
However, this is not the case for many active funds, where investors
may be paying up to 20 basis points pa more to access an active fund
through a platform when compared with what it would cost going direct
to the manager. Against a background of increased scrutiny on fees
particularly for DC schemes, investors should be careful to compare the
differences between investing via a platform and investing directly with
a manager.
Contentp10 2. analysis of feesp12 2.1 The mist is clearing, but there’s still not full
transparency
p14 2.2 Being informed allows investors to
negotiate better
p14 2.3 Retaining clients is more important than
delivering good performance
p16 2.4 It’s a competitive market, with many
players vying for the same business
p17 2.5 Everyone knows transaction costs can be
high, so what’s the problem with disclosing
them?
10
Fees vary widely between different asset classes and within the same asset class, and negotiating fees can result in material cost savings over time.
Gavin Orpin
Partner LCP
ana
lysi
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12 LCP Investment Management Fees Survey 2015
2. analysis of fees
2. analysis of fees
Improved disclosure makes for better informed decisions
2.1 the mist is clearing, but there’s still not full transparencyWhen assessing fees for different mandates, investors should ensure
that they consider the indirect costs that will be payable above the AMC.
These costs include custody fees, administration costs and payments to
third parties, plus all of the additional expenses that relate to the everyday
running of the fund. The total fee, including these additional costs, is now
known as the Ongoing Charges Figure (OCF).
When we published our first fee survey five years ago, we noted that
many investment managers (around 33%) did not freely disclose the
details of the indirect costs their clients were incurring to access certain
funds. Later, on the back of significant government and industry pressure,
including from the Investment Management Association, Chartered
Financial Analysts Society and the Pensions Institute, we can report
that there has been some improvement, with around 83% of investment
managers now disclosing some information. However, in our view this is
still not good enough and those minority of organisations that seem happy
to keep clients in the dark about the level of indirect costs are jeopardising
the reputation of all investment managers.
This year we also asked respondents to provide a breakdown of indirect
costs. In particular, investment managers were asked to state whether
the additional costs were fixed, variable and payable to themselves or to
third parties. Disappointingly, many respondents were either unable or
unwilling to provide this detail, meaning that clients still remain unclear
about what total revenues are being taken by investment managers
compared to the costs paid outside the organisation.
Indirect costs above the AMC differ greatly across different asset classes.
We have shown in the chart opposite the AMC and additional expenses
for a number of asset classes. Note that the sample only includes those
managers who had provided some information about their ongoing
charges, so for example, we are no longer able to report on indirect hedge
fund costs, which historically had one of the highest indirect costs.
Ongoing charges figure (also
referred to as the total expense
ratio):
Consists principally of the investment
manager annual fee and the cost for
other services paid for by the pooled
fund, such as the fees paid to the
custodian, auditors, administrators,
managing agents and trustees of the
pooled fund. It excludes entry and
exit costs and performance related
fees, if applicable.
13LCP Investment Management Fees Survey 2015
2. analysis of fees
Overall costs for a range of asset classes
0 50 100 150 200 250
UK government bonds (passive)
UK equities (passive)
UK government bonds (active)
UK corporate bonds (core)
Aggregate bonds (core)
UK equities (core)
Global corporate bonds (core)
Absolute return bonds
Long-lease property
High yield bonds
Multi-asset absolute return
Global equities (core)
Emerging markets debt
UK equities (high performance)
Global equities (unconstrained)
Emerging market multi-asset
Emerging markets equities
UK property
Private equity
Additional expenses (bps)
AMC (bps)
Property Expense Ratio (bps)
It should be noted that indirect costs for property funds are not directly
comparable to many other asset classes, because they also include
ongoing property management costs, such as building maintenance costs.
This additional expense for property is known as the real estate expense
ratio (REER), and includes both the normal indirect costs payable on a
pooled fund as well as costs relating to property management.
Property aside, indirect costs can vary widely between different asset
classes. Where indirect costs are particularly high, such as for private
equity, it is often because the manager is also paying investment
management fees to an external manager. It is therefore clearly important
that trustees understand what additional charges might apply when
considering different asset classes as the range is very large.
LCP viewpoint
It is disappointing that still around 1/6 of managers do not provide the basic
information to allow investors to judge the total costs that are being incurred to manage
their assets. The position is improving, but it’s still necessary to keep pressure on that
small underperforming minority.
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14 LCP Investment Management Fees Survey 2015
2. analysis of fees
2.2 Being informed allows investors to negotiate betterMost investors recognise that investment management fees can vary
widely between asset classes, but it’s important to note that within the
same asset class, there can also be a wide variation between the highest
and lowest fees being charged for similar mandates.
The chart below shows the total annual fees for similar-type global equity
mandates. Fees ranged from around 60 basis points pa for around 15%
of the lowest charging managers to over 100 basis points pa for the most
expensive 18% of managers.
Range of management fees - £50 million active global equity mandate
0
10
20
30
40
<60 61-70 71-80 81-90 91-100 101+
AMC (bps per annum)
OCF (bps per annum)
Trustees should be aware of the range of fees paid for similar mandates, as
this can provide an excellent basis for fee negotiation.
LCP viewpoint
Investors should be aware that fees can vary widely between asset classes and within
asset classes for the same mandate. Information in this survey should help investors to
negotiate reasonable fees for the services that they receive.
2.3 retaining clients is more important than delivering good performanceTypically, fees for UK pension fund investments are fixed based on the
size of the assets under management. This means that the pound amount
of those fees will increase when the mandate size increases. On the face
of it, that seems sensible with both the investor’s and investee’s interests
apparently aligned.
However, where a manager is appointed to deliver an above index return,
market movements for that index contribute significantly to the change in
investment management fees paid.
15LCP Investment Management Fees Survey 2015
2. analysis of fees
We demonstrate this in the chart below, based on a typical £50million
active global equity mandate. With global equity markets rising by 10%
pa over the last five years, annual investment management fees for the
typical global equity manager achieving that return would have increased
by around £200,000 (57%) over the period as a whole.
Variation in annual fee resulting from market movements
350
300
400
450
500
550
600
Tota
l fee
(£
,00
0) Following last
5 years return
Typical fee for a £50m mandate (£350,000 per annum)
From out/underperforming
the market by 2% per annum for 5 years
Further £40,000 increase
Reduction of £45,000
Increase from market
movements
Increase linked to RPI
Variation from manager
outperformance
£200,000increase
£90,000increase
The bars on the right show how this increased fee would vary depending
on a manager’s actual performance. So for example, if the investor had
selected a manager that outperformed by 200 basis points pa, the annual
fee would have increased by about £240,000 (ie an additional £40,000
on top of the £200,000 from market movements). Both the investor and
investee should be happy in that scenario.
However, consider the fee for an underperforming manager. We therefore
also consider the fee for a manager underperforming by 200 basis points
pa over the same period. This manager’s annual fee would have increased
by about £155,000 over the same five year period, simply because the
equity market has gone up. That’s a healthy increase, particularly given
that an increase in the Retail Prices Index over the same period would have
resulted in an increase of around just £90,000.
LCP viewpoint
We have long argued that existing fee basis for many mandates poorly align the
interests of investor and investee, with often the investment manager being rewarded
simply for keeping a client rather than delivering a good return. Performance related
fees can help improve the alignment of interests, particularly if there is a relatively
low fixed fee element and the value added by the manager, rather than the market, is
rewarded through a performance bonus.
ana
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16 LCP Investment Management Fees Survey 2015
2. analysis of fees
2.4 It’s a competitive market, with many players vying for the same businessSince we published our first fee survey in 2010, scrutiny on investment
management fees has intensified. Has this focus had a downward pressure
on investment management fee rates? In the case of global equities the
answer is yes, whilst for some other mandates, fee rates have increased.
We have shown in the chart below a selection of mandate fee rates that
have reduced since our 2010 survey, as well as some fee rates that have
gone up.
0%
10%
20%
30%
40%
50%
60%
70%
Global unconstrained
equities
Emerging market equities
Diversified growth funds
UK property
UK corecorporate
bonds
UK core equities
Proportion of funds where AMC has changed since 2010
AMC reduced AMC increased
The majority (58%) of global equity managers included in both the 2010
and 2015 surveys have reduced their fee rates overall. For those managers,
this reduction was on average 20%. For a £50million global unconstrained
equity mandate, that equates to a saving of around £58,000 pa.
In contrast, around 42% of UK core corporate bond managers increased
their fee rates by on average 32%. For a £50million corporate bond
mandate, that equates to a fee increase of around £46,000 pa.
LCP viewpoint
Considering the average level of fees does not provide the full picture on how fees are
changing. Average fee rates for global equity managers and UK core corporate bond
managers have not changed materially between our 2010 and 2015 surveys, although
clearly a number of managers have changed fee rates. This reinforces the argument that
investors should be regularly reviewing the level of fees they are paying, using reliable
up to date market data to negotiate the best rates for each of their mandates.
17LCP Investment Management Fees Survey 2015
2. analysis of fees
2.5 everyone knows transaction costs can be high, so what’s the problem with disclosing them?This is the second fee survey where we have asked investment managers
to provide information on typical transaction costs incurred within pooled
funds, such as brokerage commission, taxes and dilution levy. These costs
are not part of the ongoing charges figure, but increasingly investors want
managers to disclose all costs that are being incurred.
Compared to our previous survey, when only around 1/3 of respondents
provided some transaction cost information, around 1/2 of respondents
now provide transaction cost data. Whilst this is heading in the right
direction, the amount of information disclosed is such that there is still
insufficient data to conduct a meaningful analysis on transaction costs.
For those managers who did not respond on transaction costs, some
stated that they were unable to split transaction costs into the cost of
dealing commissions and taxes, while others stated that they do not
disclose transaction costs.
LCP viewpoint
We have seen improvements in this area, but it’s simply not enough. As part of best
practice, managers should be disclosing this information, but exactly half did not want
to disclose anything to us.
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Contentp18 3. DC: additional charges within DC platforms are highest when offering active funds
18
Accessing active management through platforms can be more expensive than investing direct with the manager. However it is possible to negotiate fee discounts with the underlying managers, as well as the platform provider, to ensure your members get the best fee deal possible.
Laura Myers
senior ConsultantLCP
DC
: ad
dit
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20
The absence of a pre-set
fee scale for investment
platforms opens the way to
negotiate fees.
We asked the investment
platforms to provide us
with indicative Ongoing
Charges Figures for specific
funds assuming different
scheme sizes, 10% ongoing
contributions and three
blended funds. We have
assumed that 50% of the
scheme would be invested in
the passive fund and 25% in
each DGF.
LCP Investment Management Fees Survey 2015
3. DC: additional changes within DC platforms are highest when offering active funds
3. DC: additional charges within DC platforms are highest when offering active fundsMost trust-based DC schemes appoint an investment-only platform
provider, rather than appoint separate investment managers for different
funds. There are a number of advantages of using an investment platform,
which include:
� providing access to a wide range of both passively and actively
managed funds from different managers;
� a more efficient mechanism when switching assets between funds
compared to dealing directly;
� an easier way of replacing an existing manager with another manager;
and
� the ability of the platform to combine two or more funds into a white
labelled fund with a single unit price, making administration less complex
and member communication easier.
When an investment manager is appointed directly, standard fee scales
are based on that client’s assets under management. By contrast, for
investment platforms, non-standard fee scales tend to apply, as platform
providers consider a number of factors when setting the level of fees
charged to a particular scheme, including the current assets, number of
blended funds required and ongoing contributions.
As you would expect, the benefits of an investment platform typically
come at an additional cost – the Ongoing Charges Figure reflects the
combination of the platform fee and the quoted investment management
costs of the individual fund. The platform fee is typically the same for
every fund and the platform provider negotiates a fee rate directly with
the underlying managers.
To demonstrate the level of the platform fee, we have shown in the chart
opposite the typical additional cost charged by platform providers. This
is based on a passive global equity fund and two diversified growth funds
that appear on most investment platforms. Note that the chart shows
the extra cost of accessing those funds on the platform and therefore
should help trustees to assess how much they are paying for the benefits
of accessing funds through the platform rather than investing directly in
those funds.
21LCP Investment Management Fees Survey 2015
3. DC: additional changes within DC platforms are highest when offering active funds
Additional cost of investment platform vs direct investment (basis points pa)
0
2
4
6
8
10
12
14
16
18
20
£50m £100m £150m £250m £500m
Passive global DGF 1 DGF 2
additional fees per annum (£,000)
scheme size £50m £100m £150m £250m £500m
Passive global 6 16 32 43 61
DGF 1 93 169 246 375 675
DGF 2 51 85 120 158 735
The analysis shows that accessing the passive fund through the investment
platform incurs a relatively small extra cost when compared with accessing
the DGF funds through the same platform. For example a £50million
scheme, would incur an additional cost of 1.2 basis points pa (£6,000 pa)
compared with investing directly with the passive manager. The additional
cost of accessing the DGFs through the platform on average are 19 basis
points pa and 10 basis points pa respectively, (ie an extra £93,000 pa and
£51,000 pa respectively).
Note that the jump in costs for DGF 2 at the £500million mandate size is
because that DGF is willing to offer a significant fee discount to clients,
which does not appear to be available if the same fund is accessed
through investment platform providers.
LCP view
Trustees should be aware that investing through a platform incurs extra costs and the
benefits of accessing all of a schemes investment options through this one source need to
be weighed up with the extra costs being incurred.
DC
: ad
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22
4. next steps for pension scheme trustees
Against the background of lower expected returns in future, it is more
important than ever that pension scheme trustees get a good deal on
investment management fees they pay.
Trustees should:
� review their fee arrangements on a regular basis, using this survey
to benchmark their fees and gauge whether they are getting value
for money;
� ensure they understand the additional costs that are being paid
on pooled funds, as indirect costs can be high and will offset the
performance their managers acheive;
� insist that their managers provide full disclosure of the costs,
including transaction costs, that are incurred as transparency needs
to improve; and
� assess platform providers’ fees before deciding whether or not it
is better value for DC scheme members to invest directly with the
investment managers themselves.
LCP Investment Management Fees Survey 2015
4. next steps for pension scheme trustees
Contentp23 5. appendicesp24 5.1 Asset management charge
details by asset class
p40 5.2 List of respondents
ap
pen
dic
es
24
5.1 annual management charge details by asset classIn this Appendix we set out details of the AMC, including an indication of
how such charges vary across managers, for each asset class.
For the purpose of this survey we have grouped together similar mandates
into the following asset group definitions.
equitiesequity mandate definitionCompany equity gives the owner a share in that company, and hence a
share of its profits, typically received through the payment of dividends.
UK equities (core)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
159 304 422 538 634 750 875 1000
130 250 371 490 569 660 753 840
125 223 296 373 450 525 582 650
LCP Investment Management Fees Survey 2015
5. appendices
uK equities (core): mandates which
target outperformance of a UK equity
benchmark index return or equivalent
by up to 2.0% per annum.
Top quartile
Median
Bottom quartile
25LCP Investment Management Fees Survey 2015
5. appendices
UK equities (high performance)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
188 375 563 750 938 1125 1313 1500
188 375 563 735 888 1035 1190 1340
164 309 437 573 691 803 919 1035
UK equities (unconstrained)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
90
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
200 400 589 763 953 1144 1334 1525
188 375 563 750 913 1080 1251 1420
184 350 521 669 813 975 1133 1256
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
uK equities (high performance):
mandates which target
outperformance of a UK equity
benchmark index return or equivalent
by over 2.0% per annum.
uK equities (unconstrained):
mandates which target
outperformance of a UK equity
benchmark index return or equivalent
over the long term. The manager
takes little/no account of the
benchmark index when managing the
mandate and usually will have a high
outperformance target and high risk
tolerance.
ap
pen
dic
es
26 LCP Investment Management Fees Survey 2015
5. appendices
Global equities (core)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
188 375 540 700 828 994 1159 1325
168 325 450 580 694 825 919 1040
150 280 390 500 606 713 814 915
Global equities (high performance)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
90
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
192 375 563 750 938 1125 1313 1500
175 350 491 615 750 885 1024 1160
162 300 411 500 618 737 823 938
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
global equities (high performance):
mandates which target
outperformance of a global equity
benchmark index return or equivalent
by over 2.0% per annum.
global equities (core): mandates
which target outperformance of a
global equity benchmark index return
or equivalent by up to 2.0% per annum.
27LCP Investment Management Fees Survey 2015
5. appendices
Global equities (unconstrained)
Mandate size
AM
C (
bas
is p
oin
ts p
er a
nnum
)
0
10
20
30
40
50
60
70
80
90
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
200 375 563 750 919 1078 1240 1400
181 350 510 650 800 925 1063 1100
163 310 428 540 656 758 875 925
Emerging market equities
Mandate size
AM
C (
bas
is p
oin
ts p
er a
nnu
m)
0
10
20
30
40
50
60
70
80
90
100
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
238 464 675 889 1089 1289 1488 1700
213 425 638 780 963 1133 1313 1500
188 375 563 750 906 1088 1260 1405
emerging market equities: mandates
which invest in equities for markets
which are developing such as China,
Russia, India and Brazil. These
investment markets are characterised
by high levels of risk and often higher
investment returns when compared to
developed markets.
global equities (unconstrained):
mandates which target
outperformance of a global equity
benchmark index return or equivalent
over the long term. The manager
takes little/no account of the
benchmark index when managing the
mandate and usually will have a high
outperformance target and a high risk
tolerance.
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
ap
pen
dic
es
LCP Investment Management Fees Survey 2015
5. Appendices28
Global small-cap equity
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
90
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
213 418 617 805 1003 1189 1317 1500
194 388 570 750 938 1118 1286 1460
169 338 506 675 844 1013 1168 1320
Smart beta
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
5
10
15
20
25
30
35
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
75 125 188 250 313 285 333 380
63 105 149 193 236 280 324 368
55 100 120 160 188 225 263 300
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
global small-cap equity: typically
an equity portfolio invested in the
shares of companies with market
capitalisation from around £15million
up to around £400million. These funds
typically aim to outperform indices
such as MSCI World Small Cap Index
by 1-2% per annum.
smart beta: a rules-based approach
to equity investing, but using an
alternative weighting to the traditional
market capitalisation-based indices.
29LCP Investment Management Fees Survey 2015
5. Appendices
BondsBond mandate definitionBonds comprise securities issued by companies, governments and other
organisations that pay a series of regular payments and, at maturity, a final
lump sum payment. The payments are either fixed in nature or can be
increased by reference to some index, such as the Retail Prices Index.
Global corporate bonds (core)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
5
10
15
20
25
30
35
40
45
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
100 179 263 350 431 491 556 615
88 165 233 300 375 428 481 540
76 150 225 290 338 390 438 500
Global corporate bonds (unconstrained)
Mandate size
AM
C (
bas
is p
oin
ts p
er a
nnum
)
0
10
20
30
40
50
60
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
122 244 330 438 544 649 757 860
113 213 289 365 436 510 590 660
88 168 240 313 375 435 503 540
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
global corporate bonds
(core): mandates which target
outperformance of a global corporate
bond benchmark index return or
equivalent by up to 1.5% per annum.
global corporate bonds
(unconstrained): mandates which
target outperformance of a global
corporate bond benchmark index
return or equivalent of more than 1.5%
per annum.
ap
pen
dic
es
LCP Investment Management Fees Survey 2015
5. Appendices30
UK corporate bonds (core)
Mandate size
AM
C (
bas
is p
oin
ts p
er a
nnum
)
0
5
10
15
20
25
30
35
40
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
88 150 225 300 375 450 525 600
75 145 195 250 313 375 427 480
75 135 188 240 288 330 368 420
UK government bonds (active)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
5
10
15
20
25
30
35
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
75 135 194 254 311 367 426 485
68 125 161 215 263 308 341 380
59 96 135 173 203 244 271 308
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
uK government bonds (active):
mandates which invest in debt issued
by the UK government managed on an
active basis.
uK corporate bonds (core): mandates
which target outperformance of a
UK corporate bond benchmark index
return or equivalent by up to 1.5% per
annum.
31LCP Investment Management Fees Survey 2015
5. Appendices
Aggregate bonds (core)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
5
10
15
20
25
30
35
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
83 161 242 323 369 439 481 545
75 132 188 250 300 356 416 473
65 116 170 221 258 308 328 370
Aggregate bonds (unconstrained)
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
122 226 335 444 550 656 762 867
113 220 308 400 488 570 665 740
99 190 259 325 381 443 499 560
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
aggregate bonds (unconstrained):
mandates which target
outperformance of a combined
corporate bond and gilt benchmark
index return or equivalent by over 1.5%
per annum. The manager takes little/
no account of the benchmark index
when managing the mandate.
aggregate bonds (core): mandates
which target outperformance of a
combined corporate bond and gilt
benchmark index return or equivalent
by up to 1.5% per annum.
ap
pen
dic
es
LCP Investment Management Fees Survey 2015
5. Appendices32
Absolute return bonds
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
150 300 450 600 747 870 1015 1140
125 250 375 500 625 750 875 980
100 200 289 375 453 525 613 638
0
10
20
30
40
50
60
70
£25m £50m £75m £100m £125m £150m £175m £200m
High yield bonds
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
amC per annum (£,000)
163 319 444 593 741 870 978 1120
138 252 375 490 591 697 803 904
109 204 302 400 500 600 700 800
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
High yield bonds: mandates invested
in government or corporate bonds with
a S&P credit rating below BBB.
absolute return bonds: mandates
invested in debt (typically both
government and corporate) and
often currency markets, which is
usually managed on an unconstrained
basis and aims to deliver positive
absolute returns, rather than being
benchmarked against a market index.
33LCP Investment Management Fees Survey 2015
5. Appendices
Emerging market debt
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
188 375 559 730 906 1080 1260 1430
163 325 473 600 745 885 1033 1160
148 283 398 500 625 728 796 910
Liquidity cash
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
2
4
6
8
10
12
14
16
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
38 75 113 150 188 225 263 300
31 50 75 100 125 150 175 200
25 50 75 100 125 150 175 200
Top quartile
Median
Bottom quartile
Liquidity cash: mandates which
diversify short-term money market
securities, such as deposits, certificates
of deposit and commercial paper. The
main focus of these mandates is high
liquidity and capital preservation.
emerging market debt: mandates
which invest in government or
corporate bonds within developing
nations such as China, Russia, India and
Brazil. Their investment markets are
characterised by high levels of risk and
often higher investment returns (than
developed markets).
Top quartile
Median
Bottom quartile
ap
pen
dic
es
LCP Investment Management Fees Survey 2015
5. Appendices34
Enhanced cash
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
2
4
6
8
10
12
14
16
18
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
40 80 120 160 200 240 280 320
38 75 113 150 188 225 263 300
28 56 84 113 141 169 197 225
Property definitionInvestments in buildings and land and can involve developments and/
or the ongoing management of property. For pension scheme investors,
property normally refers to commercial property such as offices, shops
and factories, rather than residential. Returns come from rental income
and capital appreciation.
UK property
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
188 375 563 750 938 1125 1313 1500
175 350 525 700 875 1050 1225 1400
154 304 435 560 688 810 928 1060
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
uK property: mandates
which are primarily invested
in property in the UK.
enhanced cash: mandates which
are actively managed and aim to
outperform liquidity cash funds, after
fees.
35LCP Investment Management Fees Survey 2015
5. Appendices
Long lease property
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
122 244 366 488 609 731 853 975
106 213 319 425 531 638 744 850
100 200 300 400 500 600 700 800
alternative asset classesalternatives mandate definitionThese are asset classes that have not traditionally been used by pension
schemes. Many alternatives target absolute returns rather than relative
returns, and managers typically charge much higher fees than for
“traditional” asset classes such as equities and bonds.
Multi-asset absolute returns
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
80
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
188 375 559 723 875 1050 1225 1400
163 300 435 565 688 825 963 1100
125 250 375 500 625 750 875 1000
Top quartile
Median
Bottom quartile
Top quartile
Median
Bottom quartile
Long lease property: similar to
traditional property investments, but
mandates aim to provide a greater link
to inflation.
multi-asset absolute returns:
mandates which provide exposure
to a broad range of traditional and
alternative asset classes in one fund.
These funds target either absolute
returns or returns relative to an
inflation benchmark and aim to deliver
performance with significantly less
volatility than equities.
ap
pen
dic
es
LCP Investment Management Fees Survey 2015
5. Appendices36
Specialist credit
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
150 295 437 578 719 863 1002 1145
125 250 364 475 588 683 775 855
113 200 294 385 463 544 634 722
Top quartile
Median
Bottom quartile
specialist credit: includes mandates
such as multi-asset credit and secured
loans. Multi-asset credit mandates
predominantly invest across a
broad range of credit asset classes,
predominantly in sub investment grade
markets, to capitalise on attractive
market dynamics that have resulted
from the reduced level of lending to
companies from banks. A secured loan
mandate is a fixed income asset class
comprising loans in highly leveraged
companies. These loans pay a floating
rate of return, expressed as a spread
over LIBOR.
37LCP Investment Management Fees Survey 2015
5. Appendices
Other asset classes
uK corporate bonds (unconstrained): mandates which target
outperformance of a UK corporate bond benchmark index return or
equivalent by over 1.5% per annum. The manager takes little/no account of
the benchmark index when managing the mandate.
Illiquid credit: mandates which invest in a range of illiquid asset classes
such as loans, commercial mortgages, asset-backed securities and
distressed debt.
socially responsible investments: mandates which invest in global equities
taking into account social, ethical and/or environmental factors in the
investment process being followed.
Liability driven investments: investment approach which focuses more on
the underlying liabilities than has traditionally been the case. It is typically
used to allow trustees to manage inflation or interest rate risk closely. We
have shown fees relative to the amount of liabilities being covered.
Fund of hedge funds: mandates which invest in a range of underlying
hedge funds. Most fund of hedge funds offer a performance-related fee.
The data assumes that managers who reference a performance-related
fee have outperformed cash by 4% (before fees), and show the final fee
incorporating the performance-related element.
Listed infrastructure: mandates which invest in the equity of quoted
companies whose primary business is the ownership and/or management
of infrastructure assets. Assets are actively managed.
Commodities: mandates which comprise a range of physical goods, eg
foodstuffs such as wheat as well as metals or energy and raw materials
such as oil. The approach is implemented typically wholly or largely via
derivatives.
emerging market multi-asset: these funds offer exposure across emerging
equity, bond and currency markets in one fund. The objective is generally to
achieve an absolute return around 10% per annum.
Private equity: mandates which invest in shares (or sometimes other
security types) of companies or funds that are not publicly quoted. Private
equity mandates often involve high levels of leverage.
ap
pen
dic
es
38 LCP Investment Management Fees Survey 2015
5. appendices
Other - matching
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
10
20
30
40
50
60
70
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
103 200 285 370 450 540 613 700
148 290 435 580 725 870 1015 1160
60 105 150 200 250 285 333 380
Mean fee rates are shown due to insufficient data.
Other - growth
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
20
40
60
80
100
120
140
160
180
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
188 375 563 750 938 1125 1313 1500
261 513 753 989 1213 1433 1668 1882
223 440 653 860 1075 1290 1488 1700
145 265 390 520 613 720 823 940
238 475 698 910 1138 1350 1575 1780
390 780 1170 1560 1950 2340 2730 3120
Fund of hedge funds
Listed infrastructure
Commodities
Emerging market multi-asset
Private equity
Socially responsible investments
Illiquid credit
Liability driven investments
UK corporate bonds (unconstrained)
39LCP Investment Management Fees Survey 2015
5. appendices
Passive - bonds
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
5
10
15
20
25
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
23 35 45 60 75 90 88 100
58 95 135 170 200 240 263 300
30 55 83 100 125 135 158 180
20 40 53 70 88 90 105 120
Passive - growth
Mandate size
AM
C (
bas
is p
oint
s p
er a
nnum
)
0
5
10
15
20
25
30
35
40
£25m £50m £75m £100m £125m £150m £175m £200m
amC per annum (£,000)
31 53 71 88 100 113 126 140
22 36 51 66 77 88 101 113
85 150 219 288 350 418 485 553
95 175 248 330 375 450 525 600
Passive management: is available for
most equity and bond markets. We
provide below typical fee rates for a
selection of passive asset classes.
Aggregate bonds
UK corporate bonds
Global corporate bonds
UK government bonds
Global equities
UK equities
Emerging market equities
Commodities
ap
pen
dic
es
40 LCP Investment Management Fees Survey 2013
5. appendices
5.2 List of respondentsThe following is a list of respondents in our survey. There were a further 16
respondents that did not wish to be named.
Aberdeen Asset Management Limited
Aegon UK
Alliance Bernstein Institutional Investments
Alliance Trust Asset Management
Allianz Global Investors
Artemis Investment Management Limited
AXA Investment Managers
AXA Wealth Limited
Baillie Gifford & Co
Barings plc
BlackRock Investment Management
Blackstone Group International Limited
BlueBay Asset Management LLP
Cantillon Capital Management LLP
Capital Group
Dimensional Fund Advisors
F & C Asset Management plc
Fidelity Worldwide Investment
First State Investments (UK) Limited
Franklin Templeton Institutional
Fulcrum Asset Management LLP
Henderson Group plc
Hermes Fund Managers Limited
Heronbridge Investment Management LLP
HSBC Global Asset Management
Investec Asset Management Limited
Ironbridge International
J O Hambro Capital Management
Jupiter Asset Management
Kames Capital
Legal & General Investment Management
Lazard Asset Management
Lindsell Train Limited
41LCP Investment Management Fees Survey 2013
5. appendices
Lombard Odier Investment Managers
Longview Partners LP
Loomis Sayles
Lothbury Investment Management
M&G Investments
Martin Currie Investment Management Limited
Mayfair Capital
MFS International UK Limited
Morgan Stanley
Natixis Asset Management UK
Newton Investment Management Limited
Odey Asset Management LLP
Old Mutual Asset Management LLP
Pantheon Ventures Limited
Pioneer Global Investments
Principal Global Investors (Europe) Limited
Putnam Investments
Pyrford International plc
River & Mercantile
Royal London Asset Management
Standard Life Investments
Stone Harbor
T. Rowe Price
Threadneedle Asset Management Limited
THS Partners
Trilogy Global Advisors, LLC
Vanguard Asset Management Limited
Vontobel Asset Management
Wellington Management Company LLP
Woodford Investment Management
ap
pen
dic
es
42
notes
43LCP Investment Management Fees Survey 2015
5. Appendices
ana
lysi
s o
f fe
es
UK
c0
315/
031
5
UK
c0
913
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LCP Investement management Fees survey 2015
Mark Nicoll
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Beth Dunmall
associate [email protected]
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