North American and European pension funds are slowly moving toward actively run mandates due to falling fees and improving returns, according to a survey.
bfinances’ second Global Fee Survey of 48 pension plans in Europe and North America finds respondents are looking favourably upon active managers due to their general performance of late as well as the ability to negotiate a better fee structure in the wake of the 2008 economic crisis.
The report compares data from its current poll to that of late 2008 and 2009 during the nadir of the financial crisis when pension funds were highly critical of active strategies and their associated fees. At that time 20% of respondents said they received either very poor or poor value for money for their investment in a fund of hedge fund (FoHF), while 13% said they received fair value and only 10% reported getting good value.
While FoHFs are even less popular today, sentiment over management fees has improved among plans that do have exposure. Only 10% of respondents rate their FoHF investment as poor or very poor, an improvement of 10% from the last survey. Eight percent say they get either very good or good value for money for their FoHF investment while 15% believe they receive fair value. Further, sentiment toward all active strategies has improved, including single hedge funds, active currency, long-only equity, fixed-income and Global Tactical Asset Allocation (GTAA).
The aftermath of the global financial crisis was a golden opportunity for institutional investors to re-negotiate base and performance fees in 2009. For base fees, 28% of respondents reported paying lower fees than last year, while 3% said they pay higher fees and 69% said fees are unchanged. For performance fees, 19% state they are lower, whereas just 2% say they are higher and 79% say the fee structure is unchanged.
The poll also points to a general shift among pension funds toward active strategies, despite the higher management costs. Twenty-three percent of pension plans have moved or intend to move toward active equity mandates while only 19% will favour passive ones and 58% report no change. Last year, only 9% of pension plans tilted toward active equity strategies while 28% favoured more passive mandates and 63% reported no change.
The findings of the poll support recent research by Russell Investments, which predicts a good year for active managers due to their ability to add value above the S&P/TSX benchmark.