Cameron Blanks from Pacific Equity Partners speaks to James Dunn at The Inside Network’s Alternatives Symposium in Melbourne on looking through the cycles and catalysing growth. The Inside Adviser
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Alphinity the latest to lower management fee on global strategy
Reading media headlines today, advisors and investors may have missed one of the more powerful releases, for the long-term at least. It related to another management fee reduction by a leading active global equity manager.
The Fidante-backed Alphinity announced that it would lower the fees on two of its global equity funds from May. These two funds are the Alphinity Global Equity Fund and the Alphinity Global Sustainable Fund, with annual management fees to reduce from 1 per cent to 0.75 per cent.
Alphinity Global portfolio manager Jonas Palmqvist said: “Both Alphinity and Fidante Partners are focused on ensuring costs to investors remain appropriate and in-line with market expectations, and our new management fee structure is a reflection of this.”
The fee reduction follows a global trend in which a combination of factors, including the proliferation of low-cost index and factor strategies, as well as broader active manager underperformance, have forced many groups to respond to investor pressure. Given the average remains above 1 per cent for a retail investor, but significantly lower for professional and institutional investors, there is likely a long way to move.
The fee reduction will put pressure on some of the bigger asset managers in the country as a jump in competition continues. The newly listed GQG Partners is among the leaders in active management at lower costs, charging around 65 basis points for its global equity strategy. This may well be one reason why the Australian listed fund manager sector has been among the worst performers this year.
The last two years have seen financial advisers stumped with rising costs amid an ever-increasing regulatory environment. Advisers, once loyal to a fund manager, are increasingly pulling clients out of high-fee products after a period of consistent under-performance relative to its benchmark. This combines with the growing trend of ‘fee budgets’ and the popularity of private market investments as alternative sources of alpha.
Research firm Zenith believes the management fee should be “around 20 per cent lower for a fund that also has a performance fee structure.” This is to incentivise the manager to beat its performance fee benchmark.
For advisers and fund managers, fee compression is an issue. Despite the average fund manager charging above 1 per cent in management fees, Australia is still among the most competitive place in the world.
Fee compression in Australia has made it a competitive space. A ban on commissions paid by fund managers and low-cost ETF providers stealing market share have been the main reasons behind falling fees, according to Morningstar.
From an adviser’s perspective, investors have become more investment and tech-savvy. They’re aware of investment costs, and they’re aware of the recent underperformance by active fund managers. For that reason, advisers face fee pressure from their clients.
The higher the fees a fund manager charges, the more is taken out of an investor’s assets via the fee, and the less goes back to the investor. On a longer-term perspective, the impact on returns is huge, because of the way investment returns compound over time.
Fund managers unable to be flexible in their fees won’t be around for long. Many who fail to deliver will be called to account. The race of falling fees is on.
