Three Takeaways on Fixed Income Fees: New Analysis from Mercer & Nasdaq eVestment data

Three Takeaways on Fixed Income fees: New Analysis from Mercer and Nasdaq eVestment data

Authors

Nasdaq for Asset Owners

Andres Ramos

Published

Oct 11, 2022 10:23AM EDT

In early 2021, Mercer and Nasdaq eVestment entered a partnership with the goal of delivering greater transparency and new efficiencies to the institutional market. As part of this partnership, Nasdaq eVestment can now incorporate data from Mercer Trends into analysis and research reports like the Fees in Focus reports.

The latest edition of the series focuses on fixed income strategies, exploring the current landscape of separate account fees and the differences in actual fees paid by asset owners versus managers’ stated fees.

Asset owners can use the report to benchmark what they can expect to pay based on the amount they are seeking to allocate to fixed income strategies.

Here are three takeaways for asset owners from the report:

1) In fixed income strategies, higher stated fees often mean better performance

Stated Fees of Fixed Income SMAs by Quartile

The report found that firms charging higher stated management fees for fixed income SMAs delivered top quartile performance for their investors on a trailing three-year basis as of Q1 2022. Albeit the margin of difference was varied based on strategy. Global unconstrained SMAs had the largest fee spread from bottom quartile to top quartile. Interestingly, in the stated fees of bottom quartile US Core SMAs managers were slightly higher than the stated fees than their top quartile peers.

2) Fees tend to be negotiable

Within the report’s sample of 102 public plan commitments from Market Lens, 62 showed that they received discounts of -1.5 bps or more from the manager-stated separate account management fee found in product profiles in Analytics. The median discount across these 62 commitments was -5.0 bps. Among the commitments to fixed income strategies analyzed, the managers of 58 products stated that their separate account fees are negotiable. Additionally, 61 products stated that performance-based fees are available as an alternative to their standard separate account fee schedule.

3) Fee step-downs vary widely by region and sub strategy

While it’s well known that asset owners see fee step-downs when they opt for larger SMA accounts, the report highlights how different those break points can be between different sub strategies. Median stated fees for EM hard currency fixed income strategies did not begin to decrease until investors committed over $100 million, while US Core strategies saw those discounts kick in after the $50 million mark. That said, Mercer data on the actual median fees paid by investors are still consistently lower than the quoted ticket prices for these strategies.