Investment management fees

Investment management fees are intended to compensate investment managers for their time and skill to manage the assets of a fund, and are usually in the form of a percentage of the assets managed.

The main types of investment fees are annual base fees, with some funds charging an additional performance fee. Fees can be quoted on a fixed basis or a sliding scale. A fixed fee is a constant percentage fee charged irrespective of the value of the assets being managed. A sliding scale fee is a structure where the percentage fee charged reduces as the value of assets managed increases.

The performance fee is generally charged when the manager outperforms its specified benchmark. The manager therefore earns a percentage of the investment profits (often both realized and unrealized). In simple terms, we can define performance fees as the manager’s share of the fund’s profits but not in their losses.

Alexforbes fee study

The purpose of the Alexforbes Fee Survey is to create transparency and visibility of fees charged by the investment industry for institutional pension fund mandates. The primary benefit of this survey is to provide trustees, asset consultants, and advisors with a framework to benchmark the fees that they are being charged. The data collection process involved liaising with asset managers to obtain relevant data, which was subsequently validated.

The survey was conducted in November 2022 and covered twenty of the most popular pension fund mandates. They are:

• Global Balanced, BIV, Segregated and Pooled Portfolios

• Global Absolute Return, Segregated and Pooled Portfolios

• Domestic Balanced, BIV, Segregated and Pooled Portfolios

• Domestic Absolute Return, Segregated and Pooled Portfolios Class

• Specialist Domestic Equity, Segregated and Pooled Portfolios

• Specialist Domestic Property, Segregated and Pooled Portfolios

• Specialist Domestic Bond, Segregated and Pooled Portfolios

• Specialist Domestic Flexible Bond, Segregated and Pooled Portfolios

• Specialist Domestic Inflation Linked Bond, Segregated and Pooled Portfolios

• Specialist Domestic Money Market, Segregated and Pooled Portfolios

The managers were asked to break down their fee structure into a standardised sliding scale framework using distinct asset under management (AuM) bands:

• R0-50 million

• R51-100 million

• R101-150 million

• R151-250 million

• R251-500 million

• R500 + million

Where relevant the fee charged for international assets was collected.

Limitations of study:

• The universe was restricted to asset managers that participate in the Alexforbes surveys.

• Participation in the survey was voluntary, and therefore selection may be biased

• In the past, asset managers used to report the fees of the domestic and international assets of their global balanced funds separately. Starting in 2021 and continuing in 2022, however, most asset managers opted to report a total fee for their respective global balanced portfolios, making it difficult for us to compare the fees for international assets with those of previous years.

• The standardisation of fees in AuM categories may not reflect an individual manager’s fee scale.