Asset managers are not passing on cost reductions from digitalisation and economies of scale to German institutional investors.
This is among the main findings of new research by German consultancy Faros Cost Advisory, focusing on cost reduction in institutional portfolios.
“Over the last year we had €85bn in inflows into German Spezialfonds – the economies of scale asset managers can generate from these amounts are huge,” said Uwe Rieken, managing director at Faros Cost Advisory, at a press conference in Frankfurt.
Oliver Dräger, senior investment consultant at Faros, said “the time to renegotiate is good” because pressure on costs is rising from various sources.
Reiken added: “Contracts that were negotiated a long time ago with an asset manager for institutional mandates for liquid asset classes are almost certainly too expensive for today’s standards.”
According to figures the consultancy drew from international statistics, today the spread between fees for an institutional mandate for European corporates can be up to 20 basis points.
Reiken said Faros had unearthed potential cost savings of up to €1bn at an unnamed “large Northern German insurer”.
For custodians, Faros calculated that their actual administrative costs have shrunk by three quarters compared to 2000.
“Our research shows there is no connection between fee and quality,” Dräger said.
Emphasising the importance of renegotiating contracts, Reiken said: “In the current markets returns are uncertain the only certainty for higher returns is to reduce costs.”
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