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LCP Investment management Fees survey 2015

2015 sees more pressure than ever on investment managers to disclose the true cost of investing. Our fifth fee survey looks at the fees investment managers are charging and highlights where greater transparency is still needed.

This is the fifth edition of the Lane Clark & Peacock LLP (LCP)

Investment Management Fees Survey. It provides an in-depth analysis of

investment management fees and related fee issues.

In total, our survey covers 45 separate asset classes, representing all of the

main asset classes invested in by UK pension funds.

LCP is a leading investment consultancy at the forefront of advising

companies and trustees on investment strategy, investment managers and

related issues.

We would like to thank the following people from LCP who have made this

survey possible:

For further information about investment management fees and LCP’s

investment manager research please contact Mark Nicoll, or the partner who

normally advises you.

For further copies of the report, please contact Nelly Geudin on

+44 (0)20 7432 6710 or email [email protected].

This report may be reproduced in whole or in part, without permission,

provided prominent acknowledgement of the source is given. Although

every effort is made to ensure that the information in this report is

accurate, Lane Clark & Peacock LLP accepts no responsibility whatsoever

for any errors or omissions, or for the actions of third parties.

The purpose of the report is to highlight the investment management fees

payable across different asset classes. This report and the information

it contains should not be relied upon as advice from LCP. Specific

professional advice should be sought to reflect an individual pension

fund’s circumstances.

View a full list of our services at www.lcp.uk.com

© Lane Clark & Peacock LLP March 2015

22

Jeremy Dell

Beth Dunmall

Olivia Hendry

Tamara Markovic-Aksoy

Mark Nicoll

Rebeccah Robinson

Kate Sinclair

Rebecca Stanton

Ellen Wallace

Ken Willis

333

LCP Investment Management Fees Survey 2015

p4 Foreword

p8 1. Key findings

p10 2. analysis of feesp12 2.1 The mist is clearing, but there’s still not full transparency

p14 2.2 Being informed allows investors to negotiate better

p14 2.3 Retaining clients is more important than delivering good performance

p16 2.4 It’s a competitive market, with many players vying for the same business

p17 2.5 Everyone knows transaction costs can be high, so what’s the problem with disclosing them?

p18 3. DC: additional charges within DC platforms are highest when offering active funds

p22 4. next steps for pension scheme trustees

p23 5. appendicesp24 5.1 Asset management charge details by asset class

p40 5.2 List of respondents


Foreword4

For both DB and DC pension arrangements, investment management fees are more in the spotlight than ever.

Mark NicollPartner, LCP


Foreword

In this survey we take a look at how the landscape for investment costs

has evolved since our first fee survey in 2010 and the progress investment

managers have made towards revealing the true cost of investing with them.

For both Defined Benefit (DB) and Defined Contribution (DC) pension

arrangements, investment management fees are more in the spotlight than

ever. On the next page we have shown some of the many initiatives and

reports on fees and charges over the last 12 months. Most notable is the

confirmation that, from April 2015, a charge cap on member-borne fees of

75 basis points pa for the default investment strategy for DC schemes will

come into force.

Our survey contains an in-depth analysis of the fees charged by investment

managers. We have also included fees charged by DC investment-only

platform providers for selected funds. We highlight a number of the key

issues for you to consider. Our survey can be used as a reference document

for:

� benchmarking existing manager fee arrangements;

� comparing fees for new investment manager appointments; and

� negotiating fee levels.

Welcome to our fifth survey on investment management fees.

Mark Nicoll

5

Fore

wo

rd


2. Analysis of fee data6

The spotlight on investment management fees has intensified.

4. may 2014UK Government issues consultation on cost savings for

the Local Government Pension Scheme.

Of the estimated savings £420million pa would be

achieved by switching all listed assets to passive

management.

6. november 2014The Financial Services Consumer Panel publishes

its research and findings “Investment costs – more

than meets the eye”. “The full costs incurred by

consumers when making long term investments are

not consistently and comprehensively defined, nor

understood”. The FSCP supports a single investment

management charge, which incorporates all costs and

expenses of the fund, including transaction costs.

8. December 2014The Independent Project Board issues a report of its audit

of the charges in legacy DC pension schemes.

£26billion in legacy pension schemes had charges above

100 basis points pa, with nearly £1billion exposed to

charges over 300 basis points pa.

9. January 2015UK government debates non-disclosure agreements

between pension schemes and fund managers and delays

introducing legislation. Despite cross-party support in the

House of Lords further consultation on this topic is now

the next step.

10. February 2015UK government confirms the governance requirements for

reporting charges and costs by DC pension schemes.

Accepting there are some hurdles to be overcome, it is

also a consultation by the DWP and FCA on how costs and

charges may be reported in a standardised, consistent and

comparable format across providers.

7. november 2014In a report entitled “Heads we win, tails you lose”,

academics from Cass Business School say that a

sweeping review of the charging structure of UK funds

is required. The majority of investors would prefer

symmetric fee structures where fund managers and

their clients share both the outperformance and the

underperformance of their funds.

3. may 2014The Pensions Institute publishes a discussion paper “On the

Disclosure of the Costs of Investment Management”.

The author concludes that “no good reasons have been put

forward for why all the costs of investment management…

should not ultimately be fully disclosed”.

2. may 2014Financial Reporting Council accepts Investment

Management Association’s proposal to report all the

dealing costs and stamp duty when an investment

manager buys and sells assets in a fund.

All costs of investing to be reported in a comprehensive

and simple pounds and pence per unit figure every year

effective April 2015.

5. June 2014The FCA introduces new rules governing brokerage commissions:

fund managers can only charge underlying clients (by deduction

from the underlying fund) for research through brokerage

commissions if that research is original and has a meaningful

impact on investment decisions.

These rules set out what is acceptable use of brokerage

commission: in particular paying for speaking to managers at

companies where they have invested or could do in future is

prohibited.

1. march 2014The DWP announces charge cap of 75 basis points pa for default

strategies of DC auto-enrolment schemes from April 2015.

The focus on charges for DC scheme members increases. For

some schemes where the member charge includes administration

costs, default strategies have had to be redesigned.

2015

2014

6

0.75% paCharge cap for default strategies of DC

auto-enrolment schemes from April 2015.

£26bnIn legacy pension schemes had charges

above 1% pa, with nearly £1billion exposed to

charges over 3% pa.

7LCP Investment Management Fees Survey 2015

2. Analysis of fee data

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With so much scrutiny on investment management fees, it’s disappointing that there are still some managers that are unable, or unwilling, to disclose details of the indirect charges that affect their clients.

Ken Willis

Partner LCP

7

the

spo

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on

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fees

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8 LCP Investment Management Fees Survey 2015

1. Key findings

£200,000Estimated increase in the

annual fee paid for the

management of a £50million

equity mandate over the five

years to 31 December 2014.

20%Amount by which some

global equity, emerging

market equity and diversified

growth fund managers have

reduced their headline annual

management charge over the

last five years.

annual management Charge (amC)

The headline quoted annual fee rate

applied to the value of assets under

management. The AMC is often quoted

in the form of basis points per annum

(bps pa). A fee of 50 bps pa (or 0.5%

pa) means that each year the manager

would earn £5,000 for every £1million

of assets managed.

Key finding

The mist is clearing, but there’s still not full transparency

Having reported a significant improvement in the number of investment

managers who provided details of indirect costs in our 2013 survey, there

still remains a minority of managers (17%) that are unable, or unwilling, to

provide full disclosure of indirect costs. With so much pressure to disclose

true costs, these key industry players are jeopardising the whole industry’s

reputation.

additional findings

� retaining clients is more important than delivering good performance

Pension scheme asset values have increased markedly since the

depths of the global financial crisis. As a result fees paid to investment

managers, most of which are based on a fixed scale applied to the value

of assets managed, have increased well ahead of the rate of inflation.

For a typical global equity mandate of £50million, we estimate that the

annual fee paid to a manager tracking the market would have increased

by around £200,000, over the five years to 31 December 2014. This

compares with an increase of only £90,000 if the annual fee for the

same mandate had increased in line with the Retail Prices Index. Even

a manager underperforming by 200 basis points pa over the same

period would have seen an above-inflation increase in fees. This form

of fee basis results in a poor alignment of interest between investment

managers and their clients.

� It’s a competitive market, with many players vying for the same business

Investment management fees vary widely for different mandates and

within asset classes, giving investors significant opportunity to negotiate

on fees. There is evidence that this competition has resulted in lower

fees for some mandates. For example, over the last five years, the

majority of global equity, emerging market equity and diversified growth

fund managers have reduced their headline annual management charge,

in some cases by as much as 20%. In contrast, the majority of UK

property, corporate bond and core UK equity managers have increased

their fee basis over the last five years. That’s perhaps not so surprising

given the increased demand for some mandates, but in the case of core

UK equities this increase probably also reflects the reduced number of

investment managers offering this form of mandate.


1. Key findings

Key

find

ing

s

20 bps paExtra charge investors may

be paying to access an active

fund through a platform

compared with going direct to

the manager.

50%Respondents to our survey

who still didn’t provide any

information on the level of

transaction costs that they

incur when managing client

portfolios.

transaction costs

The costs for buying and selling

investments, which includes broker

dealing commissions and taxes where

relevant, eg stamp duty on UK equity

and property transactions.

� everyone knows that transaction costs can be high, so what’s the problem with disclosing them?

Even though best practice guidelines state that investment managers

should provide transaction cost information to their clients, around

half of the respondents to our survey didn’t provide any information

on the level of transaction costs that they incur when managing client

portfolios. The 50% that did respond is an improvement on last time’s

survey, when just 30% provided transaction cost information. However

that’s still not good enough.

� additional charges within DC platforms are highest when offering active funds

Many trust-based DC funds now invest through investment platforms,

providing an ease of access to a wide range of manager funds. Our

analysis shows that investors pay very little for this access when

investing in passive index funds, but that the costs can be substantial

when active funds are selected. The main reason for this seems to be

that passive funds are very popular for DC funds, particularly if they form

part of a default.

However, this is not the case for many active funds, where investors

may be paying up to 20 basis points pa more to access an active fund

through a platform when compared with what it would cost going direct

to the manager. Against a background of increased scrutiny on fees

particularly for DC schemes, investors should be careful to compare the

differences between investing via a platform and investing directly with

a manager.

Contentp10 2. analysis of feesp12 2.1 The mist is clearing, but there’s still not full

transparency

p14 2.2 Being informed allows investors to

negotiate better

p14 2.3 Retaining clients is more important than

delivering good performance

p16 2.4 It’s a competitive market, with many

players vying for the same business

p17 2.5 Everyone knows transaction costs can be

high, so what’s the problem with disclosing

them?

10

Fees vary widely between different asset classes and within the same asset class, and negotiating fees can result in material cost savings over time.

Gavin Orpin

Partner LCP

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2. analysis of fees

2. analysis of fees

Improved disclosure makes for better informed decisions

2.1 the mist is clearing, but there’s still not full transparencyWhen assessing fees for different mandates, investors should ensure

that they consider the indirect costs that will be payable above the AMC.

These costs include custody fees, administration costs and payments to

third parties, plus all of the additional expenses that relate to the everyday

running of the fund. The total fee, including these additional costs, is now

known as the Ongoing Charges Figure (OCF).

When we published our first fee survey five years ago, we noted that

many investment managers (around 33%) did not freely disclose the

details of the indirect costs their clients were incurring to access certain

funds. Later, on the back of significant government and industry pressure,

including from the Investment Management Association, Chartered

Financial Analysts Society and the Pensions Institute, we can report

that there has been some improvement, with around 83% of investment

managers now disclosing some information. However, in our view this is

still not good enough and those minority of organisations that seem happy

to keep clients in the dark about the level of indirect costs are jeopardising

the reputation of all investment managers.

This year we also asked respondents to provide a breakdown of indirect

costs. In particular, investment managers were asked to state whether

the additional costs were fixed, variable and payable to themselves or to

third parties. Disappointingly, many respondents were either unable or

unwilling to provide this detail, meaning that clients still remain unclear

about what total revenues are being taken by investment managers

compared to the costs paid outside the organisation.

Indirect costs above the AMC differ greatly across different asset classes.

We have shown in the chart opposite the AMC and additional expenses

for a number of asset classes. Note that the sample only includes those

managers who had provided some information about their ongoing

charges, so for example, we are no longer able to report on indirect hedge

fund costs, which historically had one of the highest indirect costs.

Ongoing charges figure (also

referred to as the total expense

ratio):

Consists principally of the investment

manager annual fee and the cost for

other services paid for by the pooled

fund, such as the fees paid to the

custodian, auditors, administrators,

managing agents and trustees of the

pooled fund. It excludes entry and

exit costs and performance related

fees, if applicable.


2. analysis of fees

Overall costs for a range of asset classes

0 50 100 150 200 250

UK government bonds (passive)

UK equities (passive)

UK government bonds (active)

UK corporate bonds (core)

Aggregate bonds (core)

UK equities (core)

Global corporate bonds (core)

Absolute return bonds

Long-lease property

High yield bonds

Multi-asset absolute return

Global equities (core)

Emerging markets debt

UK equities (high performance)

Global equities (unconstrained)

Emerging market multi-asset

Emerging markets equities

UK property

Private equity

Additional expenses (bps)

AMC (bps)

Property Expense Ratio (bps)

It should be noted that indirect costs for property funds are not directly

comparable to many other asset classes, because they also include

ongoing property management costs, such as building maintenance costs.

This additional expense for property is known as the real estate expense

ratio (REER), and includes both the normal indirect costs payable on a

pooled fund as well as costs relating to property management.

Property aside, indirect costs can vary widely between different asset

classes. Where indirect costs are particularly high, such as for private

equity, it is often because the manager is also paying investment

management fees to an external manager. It is therefore clearly important

that trustees understand what additional charges might apply when

considering different asset classes as the range is very large.

LCP viewpoint

It is disappointing that still around 1/6 of managers do not provide the basic

information to allow investors to judge the total costs that are being incurred to manage

their assets. The position is improving, but it’s still necessary to keep pressure on that

small underperforming minority.

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2. analysis of fees

2.2 Being informed allows investors to negotiate betterMost investors recognise that investment management fees can vary

widely between asset classes, but it’s important to note that within the

same asset class, there can also be a wide variation between the highest

and lowest fees being charged for similar mandates.

The chart below shows the total annual fees for similar-type global equity

mandates. Fees ranged from around 60 basis points pa for around 15%

of the lowest charging managers to over 100 basis points pa for the most

expensive 18% of managers.

Range of management fees - £50 million active global equity mandate

0

10

20

30

40

<60 61-70 71-80 81-90 91-100 101+

AMC (bps per annum)

OCF (bps per annum)

Trustees should be aware of the range of fees paid for similar mandates, as

this can provide an excellent basis for fee negotiation.

LCP viewpoint

Investors should be aware that fees can vary widely between asset classes and within

asset classes for the same mandate. Information in this survey should help investors to

negotiate reasonable fees for the services that they receive.

2.3 retaining clients is more important than delivering good performanceTypically, fees for UK pension fund investments are fixed based on the

size of the assets under management. This means that the pound amount

of those fees will increase when the mandate size increases. On the face

of it, that seems sensible with both the investor’s and investee’s interests

apparently aligned.

However, where a manager is appointed to deliver an above index return,

market movements for that index contribute significantly to the change in

investment management fees paid.


2. analysis of fees

We demonstrate this in the chart below, based on a typical £50million

active global equity mandate. With global equity markets rising by 10%

pa over the last five years, annual investment management fees for the

typical global equity manager achieving that return would have increased

by around £200,000 (57%) over the period as a whole.

Variation in annual fee resulting from market movements

350

300

400

450

500

550

600

Tota

l fee

(£

,00

0) Following last

5 years return

Typical fee for a £50m mandate (£350,000 per annum)

From out/underperforming

the market by 2% per annum for 5 years

Further £40,000 increase

Reduction of £45,000

Increase from market

movements

Increase linked to RPI

Variation from manager

outperformance

£200,000increase

£90,000increase

The bars on the right show how this increased fee would vary depending

on a manager’s actual performance. So for example, if the investor had

selected a manager that outperformed by 200 basis points pa, the annual

fee would have increased by about £240,000 (ie an additional £40,000

on top of the £200,000 from market movements). Both the investor and

investee should be happy in that scenario.

However, consider the fee for an underperforming manager. We therefore

also consider the fee for a manager underperforming by 200 basis points

pa over the same period. This manager’s annual fee would have increased

by about £155,000 over the same five year period, simply because the

equity market has gone up. That’s a healthy increase, particularly given

that an increase in the Retail Prices Index over the same period would have

resulted in an increase of around just £90,000.

LCP viewpoint

We have long argued that existing fee basis for many mandates poorly align the

interests of investor and investee, with often the investment manager being rewarded

simply for keeping a client rather than delivering a good return. Performance related

fees can help improve the alignment of interests, particularly if there is a relatively

low fixed fee element and the value added by the manager, rather than the market, is

rewarded through a performance bonus.

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2. analysis of fees

2.4 It’s a competitive market, with many players vying for the same businessSince we published our first fee survey in 2010, scrutiny on investment

management fees has intensified. Has this focus had a downward pressure

on investment management fee rates? In the case of global equities the

answer is yes, whilst for some other mandates, fee rates have increased.

We have shown in the chart below a selection of mandate fee rates that

have reduced since our 2010 survey, as well as some fee rates that have

gone up.

0%

10%

20%

30%

40%

50%

60%

70%

Global unconstrained

equities

Emerging market equities

Diversified growth funds

UK property

UK corecorporate

bonds

UK core equities

Proportion of funds where AMC has changed since 2010

AMC reduced AMC increased

The majority (58%) of global equity managers included in both the 2010

and 2015 surveys have reduced their fee rates overall. For those managers,

this reduction was on average 20%. For a £50million global unconstrained

equity mandate, that equates to a saving of around £58,000 pa.

In contrast, around 42% of UK core corporate bond managers increased

their fee rates by on average 32%. For a £50million corporate bond

mandate, that equates to a fee increase of around £46,000 pa.

LCP viewpoint

Considering the average level of fees does not provide the full picture on how fees are

changing. Average fee rates for global equity managers and UK core corporate bond

managers have not changed materially between our 2010 and 2015 surveys, although

clearly a number of managers have changed fee rates. This reinforces the argument that

investors should be regularly reviewing the level of fees they are paying, using reliable

up to date market data to negotiate the best rates for each of their mandates.


2. analysis of fees

2.5 everyone knows transaction costs can be high, so what’s the problem with disclosing them?This is the second fee survey where we have asked investment managers

to provide information on typical transaction costs incurred within pooled

funds, such as brokerage commission, taxes and dilution levy. These costs

are not part of the ongoing charges figure, but increasingly investors want

managers to disclose all costs that are being incurred.

Compared to our previous survey, when only around 1/3 of respondents

provided some transaction cost information, around 1/2 of respondents

now provide transaction cost data. Whilst this is heading in the right

direction, the amount of information disclosed is such that there is still

insufficient data to conduct a meaningful analysis on transaction costs.

For those managers who did not respond on transaction costs, some

stated that they were unable to split transaction costs into the cost of

dealing commissions and taxes, while others stated that they do not

disclose transaction costs.

LCP viewpoint

We have seen improvements in this area, but it’s simply not enough. As part of best

practice, managers should be disclosing this information, but exactly half did not want

to disclose anything to us.

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Contentp18 3. DC: additional charges within DC platforms are highest when offering active funds

18

Accessing active management through platforms can be more expensive than investing direct with the manager. However it is possible to negotiate fee discounts with the underlying managers, as well as the platform provider, to ensure your members get the best fee deal possible.

Laura Myers

senior ConsultantLCP

DC

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The absence of a pre-set

fee scale for investment

platforms opens the way to

negotiate fees.

We asked the investment

platforms to provide us

with indicative Ongoing

Charges Figures for specific

funds assuming different

scheme sizes, 10% ongoing

contributions and three

blended funds. We have

assumed that 50% of the

scheme would be invested in

the passive fund and 25% in

each DGF.


3. DC: additional changes within DC platforms are highest when offering active funds

3. DC: additional charges within DC platforms are highest when offering active fundsMost trust-based DC schemes appoint an investment-only platform

provider, rather than appoint separate investment managers for different

funds. There are a number of advantages of using an investment platform,

which include:

� providing access to a wide range of both passively and actively

managed funds from different managers;

� a more efficient mechanism when switching assets between funds

compared to dealing directly;

� an easier way of replacing an existing manager with another manager;

and

� the ability of the platform to combine two or more funds into a white

labelled fund with a single unit price, making administration less complex

and member communication easier.

When an investment manager is appointed directly, standard fee scales

are based on that client’s assets under management. By contrast, for

investment platforms, non-standard fee scales tend to apply, as platform

providers consider a number of factors when setting the level of fees

charged to a particular scheme, including the current assets, number of

blended funds required and ongoing contributions.

As you would expect, the benefits of an investment platform typically

come at an additional cost – the Ongoing Charges Figure reflects the

combination of the platform fee and the quoted investment management

costs of the individual fund. The platform fee is typically the same for

every fund and the platform provider negotiates a fee rate directly with

the underlying managers.

To demonstrate the level of the platform fee, we have shown in the chart

opposite the typical additional cost charged by platform providers. This

is based on a passive global equity fund and two diversified growth funds

that appear on most investment platforms. Note that the chart shows

the extra cost of accessing those funds on the platform and therefore

should help trustees to assess how much they are paying for the benefits

of accessing funds through the platform rather than investing directly in

those funds.


3. DC: additional changes within DC platforms are highest when offering active funds

Additional cost of investment platform vs direct investment (basis points pa)

0

2

4

6

8

10

12

14

16

18

20

£50m £100m £150m £250m £500m

Passive global DGF 1 DGF 2

additional fees per annum (£,000)

scheme size £50m £100m £150m £250m £500m

Passive global 6 16 32 43 61

DGF 1 93 169 246 375 675

DGF 2 51 85 120 158 735

The analysis shows that accessing the passive fund through the investment

platform incurs a relatively small extra cost when compared with accessing

the DGF funds through the same platform. For example a £50million

scheme, would incur an additional cost of 1.2 basis points pa (£6,000 pa)

compared with investing directly with the passive manager. The additional

cost of accessing the DGFs through the platform on average are 19 basis

points pa and 10 basis points pa respectively, (ie an extra £93,000 pa and

£51,000 pa respectively).

Note that the jump in costs for DGF 2 at the £500million mandate size is

because that DGF is willing to offer a significant fee discount to clients,

which does not appear to be available if the same fund is accessed

through investment platform providers.

LCP view

Trustees should be aware that investing through a platform incurs extra costs and the

benefits of accessing all of a schemes investment options through this one source need to

be weighed up with the extra costs being incurred.

DC

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4. next steps for pension scheme trustees

Against the background of lower expected returns in future, it is more

important than ever that pension scheme trustees get a good deal on

investment management fees they pay.

Trustees should:

� review their fee arrangements on a regular basis, using this survey

to benchmark their fees and gauge whether they are getting value

for money;

� ensure they understand the additional costs that are being paid

on pooled funds, as indirect costs can be high and will offset the

performance their managers acheive;

� insist that their managers provide full disclosure of the costs,

including transaction costs, that are incurred as transparency needs

to improve; and

� assess platform providers’ fees before deciding whether or not it

is better value for DC scheme members to invest directly with the

investment managers themselves.


4. next steps for pension scheme trustees

Contentp23 5. appendicesp24 5.1 Asset management charge

details by asset class

p40 5.2 List of respondents

ap

pen

dic

es

24

5.1 annual management charge details by asset classIn this Appendix we set out details of the AMC, including an indication of

how such charges vary across managers, for each asset class.

For the purpose of this survey we have grouped together similar mandates

into the following asset group definitions.

equitiesequity mandate definitionCompany equity gives the owner a share in that company, and hence a

share of its profits, typically received through the payment of dividends.

UK equities (core)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

£25m £50m £75m £100m £125m £150m £175m £200m

amC per annum (£,000)

159 304 422 538 634 750 875 1000

130 250 371 490 569 660 753 840

125 223 296 373 450 525 582 650


5. appendices

uK equities (core): mandates which

target outperformance of a UK equity

benchmark index return or equivalent

by up to 2.0% per annum.

Top quartile

Median

Bottom quartile


5. appendices

UK equities (high performance)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

£25m £50m £75m £100m £125m £150m £175m £200m


188 375 563 750 938 1125 1313 1500

188 375 563 735 888 1035 1190 1340

164 309 437 573 691 803 919 1035

UK equities (unconstrained)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

90

£25m £50m £75m £100m £125m £150m £175m £200m


200 400 589 763 953 1144 1334 1525

188 375 563 750 913 1080 1251 1420

184 350 521 669 813 975 1133 1256

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

uK equities (high performance):

mandates which target

outperformance of a UK equity


by over 2.0% per annum.

uK equities (unconstrained):


outperformance of a UK equity


over the long term. The manager

takes little/no account of the

benchmark index when managing the

mandate and usually will have a high

outperformance target and high risk

tolerance.

ap

pen

dic

es


5. appendices

Global equities (core)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

£25m £50m £75m £100m £125m £150m £175m £200m


188 375 540 700 828 994 1159 1325

168 325 450 580 694 825 919 1040

150 280 390 500 606 713 814 915

Global equities (high performance)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

90

£25m £50m £75m £100m £125m £150m £175m £200m


192 375 563 750 938 1125 1313 1500

175 350 491 615 750 885 1024 1160

162 300 411 500 618 737 823 938

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

global equities (high performance):


outperformance of a global equity


by over 2.0% per annum.

global equities (core): mandates

which target outperformance of a

global equity benchmark index return

or equivalent by up to 2.0% per annum.


5. appendices

Global equities (unconstrained)

Mandate size

AM

C (

bas

is p

oin

ts p

er a

nnum

)

0

10

20

30

40

50

60

70

80

90

£25m £50m £75m £100m £125m £150m £175m £200m


200 375 563 750 919 1078 1240 1400

181 350 510 650 800 925 1063 1100

163 310 428 540 656 758 875 925


Mandate size

AM

C (

bas

is p

oin

ts p

er a

nnu

m)

0

10

20

30

40

50

60

70

80

90

100

£25m £50m £75m £100m £125m £150m £175m £200m


238 464 675 889 1089 1289 1488 1700

213 425 638 780 963 1133 1313 1500

188 375 563 750 906 1088 1260 1405

emerging market equities: mandates

which invest in equities for markets

which are developing such as China,

Russia, India and Brazil. These

investment markets are characterised

by high levels of risk and often higher

investment returns when compared to

developed markets.

global equities (unconstrained):


outperformance of a global equity


over the long term. The manager

takes little/no account of the

benchmark index when managing the

mandate and usually will have a high

outperformance target and a high risk

tolerance.

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

ap

pen

dic

es


5. Appendices28

Global small-cap equity

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

90

£25m £50m £75m £100m £125m £150m £175m £200m


213 418 617 805 1003 1189 1317 1500

194 388 570 750 938 1118 1286 1460

169 338 506 675 844 1013 1168 1320

Smart beta

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

5

10

15

20

25

30

35

£25m £50m £75m £100m £125m £150m £175m £200m


75 125 188 250 313 285 333 380

63 105 149 193 236 280 324 368

55 100 120 160 188 225 263 300

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

global small-cap equity: typically

an equity portfolio invested in the

shares of companies with market

capitalisation from around £15million

up to around £400million. These funds

typically aim to outperform indices

such as MSCI World Small Cap Index

by 1-2% per annum.

smart beta: a rules-based approach

to equity investing, but using an

alternative weighting to the traditional

market capitalisation-based indices.


5. Appendices

BondsBond mandate definitionBonds comprise securities issued by companies, governments and other

organisations that pay a series of regular payments and, at maturity, a final

lump sum payment. The payments are either fixed in nature or can be

increased by reference to some index, such as the Retail Prices Index.

Global corporate bonds (core)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

5

10

15

20

25

30

35

40

45

£25m £50m £75m £100m £125m £150m £175m £200m


100 179 263 350 431 491 556 615

88 165 233 300 375 428 481 540

76 150 225 290 338 390 438 500

Global corporate bonds (unconstrained)

Mandate size

AM

C (

bas

is p

oin

ts p

er a

nnum

)

0

10

20

30

40

50

60

£25m £50m £75m £100m £125m £150m £175m £200m


122 244 330 438 544 649 757 860

113 213 289 365 436 510 590 660

88 168 240 313 375 435 503 540

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

global corporate bonds

(core): mandates which target

outperformance of a global corporate

bond benchmark index return or

equivalent by up to 1.5% per annum.

global corporate bonds

(unconstrained): mandates which

target outperformance of a global

corporate bond benchmark index

return or equivalent of more than 1.5%

per annum.

ap

pen

dic

es


5. Appendices30

UK corporate bonds (core)

Mandate size

AM

C (

bas

is p

oin

ts p

er a

nnum

)

0

5

10

15

20

25

30

35

40

£25m £50m £75m £100m £125m £150m £175m £200m


88 150 225 300 375 450 525 600

75 145 195 250 313 375 427 480

75 135 188 240 288 330 368 420

UK government bonds (active)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

5

10

15

20

25

30

35

£25m £50m £75m £100m £125m £150m £175m £200m


75 135 194 254 311 367 426 485

68 125 161 215 263 308 341 380

59 96 135 173 203 244 271 308

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

uK government bonds (active):

mandates which invest in debt issued

by the UK government managed on an

active basis.

uK corporate bonds (core): mandates


UK corporate bond benchmark index

return or equivalent by up to 1.5% per

annum.


5. Appendices

Aggregate bonds (core)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

5

10

15

20

25

30

35

£25m £50m £75m £100m £125m £150m £175m £200m


83 161 242 323 369 439 481 545

75 132 188 250 300 356 416 473

65 116 170 221 258 308 328 370

Aggregate bonds (unconstrained)

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

£25m £50m £75m £100m £125m £150m £175m £200m


122 226 335 444 550 656 762 867

113 220 308 400 488 570 665 740

99 190 259 325 381 443 499 560

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

aggregate bonds (unconstrained):


outperformance of a combined

corporate bond and gilt benchmark

index return or equivalent by over 1.5%

per annum. The manager takes little/

no account of the benchmark index

when managing the mandate.

aggregate bonds (core): mandates


combined corporate bond and gilt


by up to 1.5% per annum.

ap

pen

dic

es


5. Appendices32

Absolute return bonds

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

£25m £50m £75m £100m £125m £150m £175m £200m


150 300 450 600 747 870 1015 1140

125 250 375 500 625 750 875 980

100 200 289 375 453 525 613 638

0

10

20

30

40

50

60

70

£25m £50m £75m £100m £125m £150m £175m £200m

High yield bonds

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)


163 319 444 593 741 870 978 1120

138 252 375 490 591 697 803 904

109 204 302 400 500 600 700 800

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

High yield bonds: mandates invested

in government or corporate bonds with

a S&P credit rating below BBB.

absolute return bonds: mandates

invested in debt (typically both

government and corporate) and

often currency markets, which is

usually managed on an unconstrained

basis and aims to deliver positive

absolute returns, rather than being

benchmarked against a market index.


5. Appendices

Emerging market debt

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

£25m £50m £75m £100m £125m £150m £175m £200m


188 375 559 730 906 1080 1260 1430

163 325 473 600 745 885 1033 1160

148 283 398 500 625 728 796 910

Liquidity cash

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

2

4

6

8

10

12

14

16

£25m £50m £75m £100m £125m £150m £175m £200m


38 75 113 150 188 225 263 300

31 50 75 100 125 150 175 200

25 50 75 100 125 150 175 200

Top quartile

Median

Bottom quartile

Liquidity cash: mandates which

diversify short-term money market

securities, such as deposits, certificates

of deposit and commercial paper. The

main focus of these mandates is high

liquidity and capital preservation.

emerging market debt: mandates

which invest in government or

corporate bonds within developing

nations such as China, Russia, India and

Brazil. Their investment markets are

characterised by high levels of risk and

often higher investment returns (than

developed markets).

Top quartile

Median

Bottom quartile

ap

pen

dic

es


5. Appendices34

Enhanced cash

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

2

4

6

8

10

12

14

16

18

£25m £50m £75m £100m £125m £150m £175m £200m


40 80 120 160 200 240 280 320

38 75 113 150 188 225 263 300

28 56 84 113 141 169 197 225

Property definitionInvestments in buildings and land and can involve developments and/

or the ongoing management of property. For pension scheme investors,

property normally refers to commercial property such as offices, shops

and factories, rather than residential. Returns come from rental income

and capital appreciation.

UK property

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

£25m £50m £75m £100m £125m £150m £175m £200m


188 375 563 750 938 1125 1313 1500

175 350 525 700 875 1050 1225 1400

154 304 435 560 688 810 928 1060

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

uK property: mandates

which are primarily invested

in property in the UK.

enhanced cash: mandates which

are actively managed and aim to

outperform liquidity cash funds, after

fees.


5. Appendices

Long lease property

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

£25m £50m £75m £100m £125m £150m £175m £200m


122 244 366 488 609 731 853 975

106 213 319 425 531 638 744 850

100 200 300 400 500 600 700 800

alternative asset classesalternatives mandate definitionThese are asset classes that have not traditionally been used by pension

schemes. Many alternatives target absolute returns rather than relative

returns, and managers typically charge much higher fees than for

“traditional” asset classes such as equities and bonds.

Multi-asset absolute returns

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

80

£25m £50m £75m £100m £125m £150m £175m £200m


188 375 559 723 875 1050 1225 1400

163 300 435 565 688 825 963 1100

125 250 375 500 625 750 875 1000

Top quartile

Median

Bottom quartile

Top quartile

Median

Bottom quartile

Long lease property: similar to

traditional property investments, but

mandates aim to provide a greater link

to inflation.

multi-asset absolute returns:

mandates which provide exposure

to a broad range of traditional and

alternative asset classes in one fund.

These funds target either absolute

returns or returns relative to an

inflation benchmark and aim to deliver

performance with significantly less

volatility than equities.

ap

pen

dic

es


5. Appendices36

Specialist credit

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

£25m £50m £75m £100m £125m £150m £175m £200m


150 295 437 578 719 863 1002 1145

125 250 364 475 588 683 775 855

113 200 294 385 463 544 634 722

Top quartile

Median

Bottom quartile

specialist credit: includes mandates

such as multi-asset credit and secured

loans. Multi-asset credit mandates

predominantly invest across a

broad range of credit asset classes,

predominantly in sub investment grade

markets, to capitalise on attractive

market dynamics that have resulted

from the reduced level of lending to

companies from banks. A secured loan

mandate is a fixed income asset class

comprising loans in highly leveraged

companies. These loans pay a floating

rate of return, expressed as a spread

over LIBOR.


5. Appendices

Other asset classes

uK corporate bonds (unconstrained): mandates which target

outperformance of a UK corporate bond benchmark index return or

equivalent by over 1.5% per annum. The manager takes little/no account of

the benchmark index when managing the mandate.

Illiquid credit: mandates which invest in a range of illiquid asset classes

such as loans, commercial mortgages, asset-backed securities and

distressed debt.

socially responsible investments: mandates which invest in global equities

taking into account social, ethical and/or environmental factors in the

investment process being followed.

Liability driven investments: investment approach which focuses more on

the underlying liabilities than has traditionally been the case. It is typically

used to allow trustees to manage inflation or interest rate risk closely. We

have shown fees relative to the amount of liabilities being covered.

Fund of hedge funds: mandates which invest in a range of underlying

hedge funds. Most fund of hedge funds offer a performance-related fee.

The data assumes that managers who reference a performance-related

fee have outperformed cash by 4% (before fees), and show the final fee

incorporating the performance-related element.

Listed infrastructure: mandates which invest in the equity of quoted

companies whose primary business is the ownership and/or management

of infrastructure assets. Assets are actively managed.

Commodities: mandates which comprise a range of physical goods, eg

foodstuffs such as wheat as well as metals or energy and raw materials

such as oil. The approach is implemented typically wholly or largely via

derivatives.

emerging market multi-asset: these funds offer exposure across emerging

equity, bond and currency markets in one fund. The objective is generally to

achieve an absolute return around 10% per annum.

Private equity: mandates which invest in shares (or sometimes other

security types) of companies or funds that are not publicly quoted. Private

equity mandates often involve high levels of leverage.

ap

pen

dic

es


5. appendices

Other - matching

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

10

20

30

40

50

60

70

£25m £50m £75m £100m £125m £150m £175m £200m


103 200 285 370 450 540 613 700

148 290 435 580 725 870 1015 1160

60 105 150 200 250 285 333 380

Mean fee rates are shown due to insufficient data.

Other - growth

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

20

40

60

80

100

120

140

160

180

£25m £50m £75m £100m £125m £150m £175m £200m


188 375 563 750 938 1125 1313 1500

261 513 753 989 1213 1433 1668 1882

223 440 653 860 1075 1290 1488 1700

145 265 390 520 613 720 823 940

238 475 698 910 1138 1350 1575 1780

390 780 1170 1560 1950 2340 2730 3120

Fund of hedge funds

Listed infrastructure

Commodities

Emerging market multi-asset

Private equity

Socially responsible investments

Illiquid credit

Liability driven investments

UK corporate bonds (unconstrained)


5. appendices

Passive - bonds

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

5

10

15

20

25

£25m £50m £75m £100m £125m £150m £175m £200m


23 35 45 60 75 90 88 100

58 95 135 170 200 240 263 300

30 55 83 100 125 135 158 180

20 40 53 70 88 90 105 120

Passive - growth

Mandate size

AM

C (

bas

is p

oint

s p

er a

nnum

)

0

5

10

15

20

25

30

35

40

£25m £50m £75m £100m £125m £150m £175m £200m


31 53 71 88 100 113 126 140

22 36 51 66 77 88 101 113

85 150 219 288 350 418 485 553

95 175 248 330 375 450 525 600

Passive management: is available for

most equity and bond markets. We

provide below typical fee rates for a

selection of passive asset classes.

Aggregate bonds

UK corporate bonds

Global corporate bonds

UK government bonds

Global equities

UK equities


Commodities

ap

pen

dic

es


5. appendices

5.2 List of respondentsThe following is a list of respondents in our survey. There were a further 16

respondents that did not wish to be named.

Aberdeen Asset Management Limited

Aegon UK

Alliance Bernstein Institutional Investments

Alliance Trust Asset Management

Allianz Global Investors

Artemis Investment Management Limited

AXA Investment Managers

AXA Wealth Limited

Baillie Gifford & Co

Barings plc

BlackRock Investment Management

Blackstone Group International Limited

BlueBay Asset Management LLP

Cantillon Capital Management LLP

Capital Group

Dimensional Fund Advisors

F & C Asset Management plc

Fidelity Worldwide Investment

First State Investments (UK) Limited

Franklin Templeton Institutional

Fulcrum Asset Management LLP

Henderson Group plc

Hermes Fund Managers Limited

Heronbridge Investment Management LLP

HSBC Global Asset Management

Investec Asset Management Limited

Ironbridge International

J O Hambro Capital Management

Jupiter Asset Management

Kames Capital

Legal & General Investment Management

Lazard Asset Management

Lindsell Train Limited


5. appendices

Lombard Odier Investment Managers

Longview Partners LP

Loomis Sayles

Lothbury Investment Management

M&G Investments

Martin Currie Investment Management Limited

Mayfair Capital

MFS International UK Limited

Morgan Stanley

Natixis Asset Management UK

Newton Investment Management Limited

Odey Asset Management LLP

Old Mutual Asset Management LLP

Pantheon Ventures Limited

Pioneer Global Investments

Principal Global Investors (Europe) Limited

Putnam Investments

Pyrford International plc

River & Mercantile

Royal London Asset Management

Standard Life Investments

Stone Harbor

T. Rowe Price

Threadneedle Asset Management Limited

THS Partners

Trilogy Global Advisors, LLC

Vanguard Asset Management Limited

Vontobel Asset Management

Wellington Management Company LLP

Woodford Investment Management

ap

pen

dic

es

42

notes


5. Appendices

ana

lysi

s o

f fe

es

UK

c0

315/

031

5

UK

c0

913

/09

13

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LCP Investement management Fees survey 2015

Mark Nicoll

[email protected]

+44 (0)20 7432 0661

Beth Dunmall

associate [email protected]

+44 (0)20 7432 3061

mailto:[email protected]

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