Callan Unveils 2025 Investment Management Fee Study
Callan, a prominent institutional investment consulting firm, recently released its latest Investment Management Fee Study, marking its 11th review on the fees associated with asset management for institutional investors. This comprehensive study meticulously analyzes various fee levels and trends across different asset classes and mandated sizes, focusing on both active and passive management across 23 distinct asset classes.
Understanding Fee Structures in Asset Management
The key takeaway from the research is its comparison between the negotiated fees that institutional investors actually pay and the published fee schedules set by investment managers. Throughout this analysis, it has been noted that while there is persistent pressure to lower fees specifically for active management, the trend appears to be stabilizing. The pace of fee compression might be nearing what could be considered a lower limit, especially for high-quality institutional products across select asset classes.
Overview of Fee Data and Trends
The insights were derived from Callan's extensive proprietary investment manager database, which incorporates actual client fee schedules alongside a detailed client performance reporting database. The findings summarize trends for fees corresponding to $784 billion in assets under management (AUM) and $1.9 billion in total fees paid. This database comprises mandates administered by around 329 investment firms and approximately 180 institutional investors.
Key Findings from the Study
The study highlighted several significant points about the current state of investment management fees:
- A major portion of total fees, approximately 97%, were allocated to active managers, showing a slight decline of 1% compared to previous evaluations.
- Approximately 61% of the total assets under management were actively managed, reflecting a similar decrease of 1% from the last analysis.
- A striking finding revealed that half of the active fees were concentrated among just 11% of the investment management firms.
- Fee structures reflected that hedge fund-of-funds commanded the highest average fees at 113 basis points, closely followed by fees for private real assets at 88 basis points.
- In stark contrast, passive investment options had significantly lower fees, with U.S. large cap equity at merely 1.9 basis points and U.S. small cap equity at 3.1 basis points.
- Interestingly, fee resilience appeared to be strongest for private real assets, hedge fund-of-funds, as well as global ex-U.S. equity and emerging equity investments.
- Conversely, fee weaknesses were noted in areas such as core-plus fixed income, high yield/bank loans, and emerging debt.
- In terms of investment vehicles, separate accounts proved to be the most favored choice among institutional investors, accounting for 54% of the products analyzed.
- Public funds held the largest share of AUM, making up 34% of mandates and 50% of total assets analyzed.
The Evolution of Passive Investments
Another notable trend observed was the increase in passive investment strategies, particularly within U.S. smid/small/micro cap equity, which escalated by 6% from the previous study to reach 29%. Simultaneously, passive utilization for core fixed income rose by 2% to 47%. However, a slight decline was noted in passive strategies for U.S. large cap equity, dropping by 3% to 70%, and global ex-U.S. equity decreased by 1% to 41%.
About Callan and Its Commitment to Clients
Established as an employee-owned investment consulting firm in 1973, Callan has consistently focused on empowering institutional clients through innovative, tailored investment solutions grounded in proprietary research and unique data. Today, Callan advises on over $3 trillion in total assets, solidifying its position among the largest independently owned investment consulting firms across the nation. With a client-centric approach, the firm adeptly serves various stakeholders including pension and defined contribution plan sponsors, endowments, foundations, independent investment advisers, and investment managers. To learn more, one can visit their official website.
Frequently Asked Questions
What is the focus of Callan's 2025 Investment Management Fee Study?
The study examines the fees institutional investors pay for asset management across various asset classes, comparing negotiated fees with published schedules.
How many asset classes does the study cover?
The research provides insights on fees across 23 different asset classes, showcasing a wide array of investment options.
What significant trends did the study reveal about active management fees?
It noted that while active management fees are under pressure to decrease, the rate of fee compression appears to be stabilizing.
What investment vehicle is most popular according to the findings?
Separate accounts emerged as the leading investment vehicle, representing 54% of the analyzed products.
What percentage of active fees are concentrated within specific firms?
The study revealed that 50% of total active fees are controlled by merely 11% of investment management firms.
