In the latest edition of its ‘Investment Advisory Fee Benchmarking Report’, independent fund research company Fitz Partners gives a unique insight into the different costs included in funds management fees and also delivers a measure of investment funds margins. This latest Fitz Partners’ research is based on asset managers’ confidential fee scmhedules and covers over 1,350 funds with US$ 1,568bn of assets under management.
Recent analysis from FITZ Partners indicates that although investment advisory fees, which refer to the cost of portfolio management, have remained constant since 2022, gross management fees, on the other hand (which can include distribution fees), have decreased. As a result, there has been a noticeable impact on the funds gross profit margins, with a decrease of around 5% for equities and 7% for bonds. As investment advisory fees remained steady, the reduction in gross profit margins is explained by the constant need to lower fees for the funds to remain competitive.
Hugues Gillibert, Fitz Partners CEO, commented: “Our latest study focussing on investment advisory costs shows that pressures on fees are very real and has led asset managers to sacrifice some of their margins to meet the need for lower overall costs to investors. While the specific underlying costs of fund portfolio management or sub-advisory have remained stable over the past year, the market pressure on overall quoted gross management fees has resulted in further reduction in asset managers’ profit margins.”
According to Fitz Partners’ latest research, average net profit margins made of revenue retained by asset management firms from income generated by management fees net of any other ancillary costs (rebates or retrocessions and portfolio management expenses) varies substantially from one asset classes to another. The largest net profit is delivered by mixed asset funds with an average net profit margin of 0.37% of fund AUM, up from 0.36% in 2022. The second-highest profit margin was recorded by alternative funds, generating a net profit of 0.30%, a slight decrease from the previous year’s 0.31%.
Hugues Gillibert, Fitz Partners CEO commented: “Depending on asset classes, asset managers’ net profit margins can stretch between 16bps and 37bps for actively managed funds. This year again, mixed asset funds have delivered the highest net margin, followed by alternative funds. Unsurprisingly, these margin levels are mostly driven by the higher level of clean management fees applied to these specific types of funds.”
