Although asset management fees were stable in 2008, this year could see a greater willingness from asset managers to negotiate their fees downwards, especially in alternative asset classes, according to consultancy Mercer.

Although asset management fees were stable in 2008, this year could see a greater willingness from asset managers to negotiate their fees downwards, especially in alternative asset classes, according to consultancy Mercer.

Mercer’s 2008 Asset Manager Fee Survey confirmed that alternative product fees were expected to come under scrutiny given their mixed results in 2008 and that fund of fund providers would find it particularly tough to defend the scale of fees being charged.

The report highlighted that, although fees were not a critical component of how investors evaluated investment products, they became an important consideration in the context of reducing “expected managed added value from 20 to 50 per cent”.

Divyeshg Hindocha, worldwide partner in Mercer’s investment consulting business, says, “It is fair to conclude, however, that fund of fund approaches extract a heavy premium from the alpha (returns above the benchmark) generation process, and we would expect this to be under challenge in the new financial environment.

“Historically, fees are higher in those strategies where asset managers have the most potential to outperform. However, anecdotal evidence suggests that, increasingly, asset managers will have to negotiate their fee structure with their ever more cost-conscious customers.”

Mercer’s findings were drawn from analysed fee data on 19,000 asset management products from 3,400 investment management firms across the world and included pooled and separately managed accounts.