Fee Pressure is Growing for Europe's Active Managers

Fee Pressure is Growing for Europe’s Active Managers
Investors in passive funds are now looking for more than just low costs

May 2018, London. The focus on investment fees is finally shifting to active management, where fee wars, galvanized by managers fighting for more flows, regulation, and new scale and efficiencies, are starting to break out, according to The Cerulli Edge―Europe Edition.

Rampant price cutting across index-tracking funds and exchange-traded funds has led to massive inflows into passive strategies, notes Cerulli Associates, a global research and consulting firm. “But, with little fat left to cut, the link between low fees and positive flows may be coming to an end,” says Angelos Gousios, director, European retail research, at Cerulli. “Instead the focus is turning to active management.”

Cerulli says that, aside from the odd single basis point, passive fees cannot fall much below the current lowest levels of around 5–6 basis points (bps). “Running and trading investment funds costs money; even a cheap tracker fund has dealing costs,” points out Gousios.

He maintains that the ability of a low headline fee to attract capital is becoming increasingly muted. “Investors know that cheapest is not necessarily best. Greater attention is being paid to how funds are managed.”

Cerulli says the number of active funds with fees of less than the traditional 100bps is on the rise. The firm cites examples of large active managers that have recently launched funds with lower fees linked to performance, in what it believes “could be the beginning of a fightback for flows among active managers.”

Competition is heating up in other areas too. In recognition of the potential risk, active managers are cutting fees for investors that back a product early; those investors that come on board later pay more. Similarly, active asset managers are offering wealth manager and distributor clients discounted share prices. Active fees are also under pressure from cheaper smart beta strategies.

 

Other Findings:

  • Progress made by the investment fund vehicles introduced in Europe over recent years remains patchy, says Cerulli, noting that the encouraging take-up of SICAVs in the UK and the Irish Collective Asset-Management Vehicle is being undermined by limited enthusiasm for European long-term investment funds.
  • Turkey, Israel, and Greece offer long-term opportunities for those willing to look beyond the quirks of these countries’ asset management industries, Cerulli research shows.

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