Just 42% of asset owners satisfied with ESG cost transparency from asset managers

Written by Adam Cadle

25/06/2024

Nine in ten asset managers have increased their ESG-related spending relative to other spending over the past three years, despite only 42% of asset owners being satisfied with the level of transparency from their asset managers over ESG costs, bfinance has revealed.

In its latest report, Investment Management Fees: Fairness Revisited, bfinance said asset managers’ ESG-related spending has risen due to factors such as costly climate data and regulatory requirements. Two thirds of asset owners believe that ESG resourcing should not affect a strategy’s price, but fewer than half of asset managers (and only a third of contributors to the report from real asset investment houses) agree.

In public markets, fixed income fees have compressed since the pandemic, according to bfinance’s research, (average investment grade bond strategy down to 21bps, average high yield credit down to 37bps). Yet higher interest rates and positive flows into investment grade bonds have eased pressure on many active managers. The shift from active to passive equity strategies is less dominant as a trend than it was during the 2010s, reducing pricing pressure. Emerging market equity fees are down a little to an average of 65bps, but global equity fees are unchanged. In private markets, high investor appetite helped asset managers to resist fee reductions in the 2010s, but weaker fundraising in 2022-2023 has strengthened investors’ negotiating positions.

Duncan Higgs, managing director and head of portfolio solutions at bfinance, said: “We hope that this research helps both asset owners and asset managers in serving the best interests of the underlying owners of capital.

"For investors, improvements on fees and costs can deliver the ideal outcome: additional performance with zero additional risk; risk-free alpha, in other words. However, delivering savings is not straightforward, especially after more than a decade of cost scrutiny driven by both investors and their regulators. It can be difficult for investors to access cost comparisons that are suitably specific and customised: simplistic benchmarking can often be too generic. It’s also important to have insight on other subjects that can affect fee and cost discussions: product knowledge, flows, performance metrics, market conditions and more.”

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