Nearly half (44 per cent) of pension plan sponsors in the U.S. said they intend to review and/or renegotiate their plan’s management fees over the next one to two years, whether it’s custody fees (27 per cent) or investment management fees (17 per cent), according to a survey by consulting firm Callan.
The survey, which polled more than 160 U.S. organizations representing 194 plans with more than US$975 billion in assets under management, found the average total expenses paid by investor size were 56 basis points for small plans, 44 basis points for medium plans and 54 basis points for large plans — down five per cent since 2015, due to their greater usage of higher-fee alternative asset classes.
“Average total fund expenses for asset owners in aggregate went down for the first time in the survey’s history,” said Ivan Cliff, Callan’s executive vice-president and director of research, in a press release. “This is not surprising given the ongoing compression of active management fees, along with the increased usage of passive management. The aggregate results, though, mask the major differences in fee trends across asset owner type and size, which is outlined in the survey.”
Non-profits paid the highest average management fees (53 basis points) while corporate plans paid the lowest (36 basis points). By investor type, non-profits also paid the most (72 basis points) due to their relatively higher allocations to alternative asset classes. Public plans paid 51 basis points and corporate plans paid 48 basis points.
The average external investment management fee was 43 basis points — down two points from 2015. And large plans paid the highest investment management fees, at 52 basis points on average, again due to their relatively higher allocations to alternative asset classes. Medium funds paid 40 basis points and small plans paid 43 basis points.
The average fee for custody services was four basis points. By investor size, the average fee was around six basis points for small funds and three basis points for large funds, which greatly benefit from their scale and efforts by the largest custodian banks to increase market share, noted the survey. In terms of the use of custody services, 81 per cent of respondents employed global custody services for U.S. assets and sub-custody of non-U.S. assets, the highest share for any category.