Managers are exploring options to cut expenses, though many still have an eye on higher-value offerings
Despite the enduring strength of investment fund inflows during the pandemic, the fee pressure that has plagued asset managers over recent years still hasn’t let up.
In its first-ever C-Suite Asset Manager survey, which drew from senior-level discussions with more than 50 C-level and senior executives, Brown Brothers Harriman found 52% were planning to reduce expense ratios on some of their products in the upcoming year.
The continued pressure comes as two secular trends – competition instigated mainly by large-scale asset managers and transparency around costs – charted a rising trajectory even in the COVID-19 environment.
“Expense ratio reduction is fairly consistent across the board regardless of the size of the asset manager,” the report said. It noted that 56% of large firms, 52% of mid-sized ones, and 50% of small asset-management firms reported plans to trim expense ratios, with many taking a methodical approach to decide where they can slash expenses and where they should hold the line.
Perhaps unsurprisingly, real estate was deemed the most expendable budget item, with nearly half (49%) of asset managers citing it as the top category of expense they’re looking to cut. The propensity to reduce real-estate expenses was pronounced among those with at least US$500 billion in AUM, with 75% of such large managers saying they would dial back real-estate expenses. In contrast, only 40% of small and 43% of mid-sized firms said the same.
Despite the focus on expense rations and cost reductions, many asset managers interviewed by BBH maintained a conviction that investors will seek out high-quality products that can add alpha, even at a higher cost basis. Few respondents said they’d put product development and release plans on hold, with several evaluating their current catalogues for possible areas where an existing product can be expanded into new markets.
“One strategy that came up repeatedly was in the area of environmental, social, and governance (ESG),” the report said. “Many expressed the notion that ESG has always been embedded in their philosophy and investments, but they haven’t necessarily received credit for it.”
