Alternative investments finished 2012 as the only asset class to experience "a material drop" in asset management fees, Mercer Investment Consulting reported Tuesday in its latest fee survey.
Overall, Mercer's analysis of more than 25,000 asset management products from more than 5,000 investment firms detected growing pressure for such fee negotiation, including a greater willingness among managers of hedge funds, direct private equity and infrastructure funds to negotiate fees.
Less than a third of managers had increased their fees, and those who did were particularly focused in small cap equity outside the United States. U.S. small cap equity management fees tended to decrease.
The drop in fees reflects a sea change in the world of retirement investing as defined contribution (DC) plans such as 401(k)s overtake traditional defined benefit (DB) pensions, according to Divyesh Hindocha, global director of consulting for Mercer's Investments business.
"Given the plentiful supply of good quality active management, the level and structure of active fees has been remarkably resilient to a slowdown in demand," Hindocha said in a statement. "As we move from a defined benefit-based pensions system to a defined contribution-based pension system, which is much more cost-conscious, our hope and expectation is that we see some innovation in this area, as otherwise the demand for active management may well fall off a cliff."
