Fees fall significantly in certain ESG strategy types – research

Institutional asset management fees have fallen significantly in a number of asset classes, particularly certain relatively mature ESG-related strategy types, according to a study by investment consultancy bfinance.

In newer sectors such as impact equities and so-called Article 9 funds, meanwhile, pricing dispersion and discounting were “providing investors with excellent opportunities to maximise value for money,” the consultancy said.

It said price compression was evident in well-established strategies such as ESG equities and renewable energy infrastructure.

For active global equity strategies with ESG requirements, the median fee quoted for a €100m mandate had decreased by 14% since 2016, from 57 basis points to 50bps.

Bfinance also said that as the renewable energy infrastructure sector had matured and developed, investors had benefitted from some significant fee reductions.

Management fees for renewables strategies have fallen by 8% since 2016 and performance fees have also declined, according to bfinance, which noted that this was through a period when fees for infrastructure strategies and private markets strategies more broadly have remained “remarkably resilient”.

Discounts in newer ESG, impact areas

Bfinance’s study also considered more specialised equity strategies, including the sub-categories of impact, ESG thematic and strategies classified as ‘Article 9’ under the EU sustainable finance disclosure regulation (SFDR). These sub-categories sometimes overlapped, it noted.

Substantial discounts are being offered versus rack rates for some of these strategy types, according to bfinance. It said research search activity suggested there may be an on-paper premium on the pricing of Article 9 strategies compared with Article 8 strategies, but that this area featured some of the most aggressive discounting.

Nearly 30% of the managers proposing Article 9 strategies offered an upfront discount, bfinance said, with these discounts primarily available from managers whose pricing sat above the median.

“In these cases, managers are often seeking seed investors and competing to gain a foothold in this growing space,” bfinance said.

The consultancy also found that there may be a modest premium, or at least a higher median quoted fee, for impact strategies that explicitly target and are equipped to report on social and environmental outcomes.

Kathryn Saklatvala, head of investment content at bfinance, said the consultancy would be keenly watching how pricing evolved for some of the more nascent sectors, such as Article 9 funds and impact real estate, “where there is more uncertainty around what an appropriate fee should look like”.

Other findings relayed by bfinance include that median fees for US high yield and multi-sector fixed income decreased by 15% since 2017. Fund of hedge fund fees fell by 42% between 2010 and 2019, but the decline looks to have stopped, said bfinance.

The full report can be downloaded below.