Mixed asset funds are delivering the highest net profit margins for asset managers, while equity and bonds funds see a decline.
Fitz Partners research showed a decline in asset managers’ margins from gross management fees charged to equity and bond funds in 2023.
The firm’s ‘Investment advisory fee benchmarking report’ found a decrease of around 5% for equity funds and 7% for bond funds.
Fitz Partners said investment advisory fees, which refer to the cost of portfolio management, have remained constant since 2022, but gross management fees (which can include distribution fees) have decreased.
As investment advisory fees remained steady, the reduction in gross profit margins is explained by the constant need to lower fees for the funds to remain competitive, according to Hugues Gillibert, Fitz Partners CEO.
The study is based on asset managers’ confidential fee schedules and covers over 1,350 funds with US$1,568 billion of assets under management.
He said pressure on fees has led asset managers to “sacrifice some of their margins” to meet the need for lower overall costs to investors.
“While the specific underlying costs of fund portfolio management or sub-advisory have remained stable over the past year, the market pressure on overall quoted gross management fees has resulted in further reduction in asset managers’ profit margins.”
Average net profit margins made of revenue retained by asset management firms from income generated by management fees net of any other ancillary costs (rebates or retrocessions and portfolio management expenses) varies substantially from one asset classes to another.
The largest net profit is delivered by mixed asset funds with an average net profit margin of 0.37% of fund assets under management, up from 0.36% in 2022.
The second-highest profit margin was recorded by alternative funds, generating a net profit of 0.30%, a slight decrease from the previous year’s 0.31%.
Gillibert said: “Depending on asset classes, asset managers’ net profit margins can stretch between 16bps and 37bps for actively managed funds. This year again, mixed asset funds have delivered the highest net margin, followed by alternative funds. Unsurprisingly, these margin levels are mostly driven by the higher level of clean management fees applied to these specific types of funds.”
