Portfolio Solutions – Fee Review, Public Markets

Engagement at a glance

The client, an Australian pension scheme, was under mounting pressure from the Australian Prudential Regulation Authority (APRA), who is responsible for collecting and publishing the performance and costs of superannuation funds. This has led to smaller funds, who do not necessarily benefit from the economies of scale afforded to larger funds, coming under undue stress and pressure to work hard on the value for money achieved from their investment managers.

Client-Specific Concerns

In an attempt to relieve some of the regulatory pressures, the client sought assistance to conduct a full review of the management fees they were paying for investment services and the performance achieved. The assessment set out to review the entirety of the client’s portfolio–with a specific focus on their public markets’ holdings–and where savings can be achieved. The client is not a large investor and investment amounts varied, with some mandates that would not be considered ‘large’ by certain managers.

The pension manager was intent on realising competitive market rates across all mandates within its portfolio, which included both active and passive approaches to a diverse array of asset classes. The client was particularly concerned about assessing managers on a full value-for-money basis and ensuring that fees were justified instead of simplistically aiming to minimise costs across all assets.

One of the options presented to the client

Outcome

• Multi-layered fee analysis: Researchers reviewed existing investment strategies to develop close peer groups that accounted for strategy specifics, investment size and other relevant considerations. An important part of this value-for-money assessment included factor performance analysis to complement fee analysis and additional manager research.
  
  
• Negotiation planning: bfinance prepared detailed negotiation plans for each strategy, working closely with the client to ensure that the approach aligned with their goals. These plans included tailored advice to support discussions, including the performance analysis noted above, and leveraged insights on the specific managers, strategies and asset classes from in-house experts in the relevant fields.
  
  
• Delivering savings: Negotiations went through several stages with more in-depth assessments of some proposals. A number of managers put forward differing proposals for segregated account or fund options–requiring assessment of additional costs. In total, these negotiations achieved a 15.25% saving on the total fees for public market strategies.