Key Takeaways
- • Nearly half (44%) of U.S. pension plan sponsors intend to review and/or renegotiate management fees over the next one to two years, according to a Callan survey, with custody fees (27%) and investment management fees (17%) the main targets.
- • Average total fund expenses for U.S. asset owners fell for the first time in the survey's history, to 56 basis points for small plans, 44 for medium plans and 54 for large plans, down five per cent since 2015.
- • The average external investment management fee was 43 basis points, down two points from 2015, while the average custody fee was four basis points.
- • Non-profits paid the highest average management fees at 53 basis points, while corporate plans paid the lowest at 36 basis points.
- • Large plans paid the highest external investment management fees at 52 basis points, reflecting their higher allocations to alternative asset classes.
Summary
Nearly half (44 per cent) of U.S. pension plan sponsors said they intend to review and/or renegotiate their plans' management fees over the next one to two years, according to a survey by consulting firm Callan. Custody fees (27 per cent) were the most commonly cited target, followed by investment management fees (17 per cent).
The survey polled more than 160 U.S. organizations representing 194 plans with more than US$975 billion in assets under management. It found average total expenses by investor size were 56 basis points for small plans, 44 basis points for medium plans and 54 basis points for large plans. Total expenses were down five per cent since 2015, which Callan attributed to greater use of higher-fee alternative asset classes. Ivan Cliff, Callan's executive vice-president and director of research, said in a press release that average total fund expenses for asset owners in aggregate fell for the first time in the survey's history. He attributed this to the ongoing compression of active management fees and increased use of passive management, while noting that aggregate results mask significant differences across asset owner type and size.
By investor type, non-profits paid the most in total fees at 72 basis points, reflecting relatively higher alternative allocations. Public plans paid 51 basis points and corporate plans 48 basis points. On management fees specifically, non-profits paid the highest average at 53 basis points and corporate plans the lowest at 36 basis points.
The average external investment management fee was 43 basis points, down two points from 2015. Large plans paid the highest at 52 basis points, while medium funds paid 40 basis points and small plans 43 basis points. The average custody fee was four basis points, at around six basis points for small funds and three basis points for large funds, which the survey linked to scale benefits and efforts by the largest custodian banks to increase market share. Eighty-one per cent of respondents used global custody services for U.S. assets and sub-custody of non-U.S. assets, the highest share of any category.
The survey polled more than 160 U.S. organizations representing 194 plans with more than US$975 billion in assets under management. It found average total expenses by investor size were 56 basis points for small plans, 44 basis points for medium plans and 54 basis points for large plans. Total expenses were down five per cent since 2015, which Callan attributed to greater use of higher-fee alternative asset classes. Ivan Cliff, Callan's executive vice-president and director of research, said in a press release that average total fund expenses for asset owners in aggregate fell for the first time in the survey's history. He attributed this to the ongoing compression of active management fees and increased use of passive management, while noting that aggregate results mask significant differences across asset owner type and size.
By investor type, non-profits paid the most in total fees at 72 basis points, reflecting relatively higher alternative allocations. Public plans paid 51 basis points and corporate plans 48 basis points. On management fees specifically, non-profits paid the highest average at 53 basis points and corporate plans the lowest at 36 basis points.
The average external investment management fee was 43 basis points, down two points from 2015. Large plans paid the highest at 52 basis points, while medium funds paid 40 basis points and small plans 43 basis points. The average custody fee was four basis points, at around six basis points for small funds and three basis points for large funds, which the survey linked to scale benefits and efforts by the largest custodian banks to increase market share. Eighty-one per cent of respondents used global custody services for U.S. assets and sub-custody of non-U.S. assets, the highest share of any category.
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