Eight in 10 (79 per cent) asset managers subsidise their own funds to keep total charges under control, a survey shows.
Fitz Partners’ latest Cross-border Fund Charges research found 19 per cent of recorded subsidies exceed the fund management fees.
Fitz Partners estimates that 24 per cent of the largest asset managers with cross-border funds distributed in Europe are currently applying a fee caps policy to at least one range of funds. These funds with fee caps show on average very similar management fees than funds without caps but higher operating expenses before subsidy.
When comparing OCF (operating charges figure) or total overall operating charges paid by investors, funds with fee caps in place show a lower level of OCF.
Hugues Gillibert, chief executive officer of Fitz Partners, says: “Equity funds with expense caps show on average lower OCF by 11bps, but this competitive edge comes at a price to the asset managers often forced to heavily subsidise their fund products.
“The level of subsidy paid by the asset managers into their funds to keep their level of total expenses down is another sign of fee pressures in the European fund market. Many asset managers have put fee caps in place so that their funds remain competitive but some of their operating charges have exceeded these caps, forcing them to reimburse these costs or waived their own fees.”
When considering fund sizes, the average overall true operating costs of funds under USD10 million is well over twice their average OCFs. Economies of scale become apparent for funds with asset under management of over USD100 million. These larger funds show lower average OCFs and manage to remain within their fee caps without any need of subsidy.