Challenge on Fees, or Lose Money, Investors Told

(July 1, 2013) – The sticker price for investment management fees is more like an opening offer, according to MSCI data on post-negotiation payments.

Even for similar-sized mandates within a specific strategy, fees varied significantly from one deal to the next. Furthermore, MSCI found “very little, if any,” correlation between performance and fees with the majority of mandates.

Fee dispersion—the spread between fees paid at the 90th and 10th percentiles for mandates between $50 million and $100 million—topped out with large cap core managers, at 50 basis points. Small cap core came next with 45 basis points, while large cap value fees were one of the most consistent, with a dispersion of 23 points.

Corporate defined benefit plans showed more variation in the fees paid than did public defined benefit plans, according to the report. Large cap core managers, for instance, had a fee dispersion of 54 basis points with corporate pension clients, and 42 basis points with publics.

Jim Morrissey, CEO of MSCI’s reporting arm, called these findings “contrary to popular views,” and promised further investigation into the relationship between fees paid, investment risk, and portfolio construction.  

The indexing and analytics firm based its conclusions on a database of 34,000 institutional fee observations for live deals. The most popular strategies recorded were all for equity managers. Out of 31 strategies examined, large and small cap core, all cap core, and small cap growth had the most robust data sets.   

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