Coronation fees too high

SMALLER MANAGERS SHOWING BIGGER ONES THE WAY There’s significant room for fees to come down in the active management industry.

In October, Coronation Fund Managers announced it was reducing fees on a number of retail unit trusts – its second fee review in a little over two years. In July 2015, Coronation removed performance fees on its Capital Plus and Balanced Defensive Funds. It’s now reduced the annual management fee on these funds to 1.25%. Now, all three of its local multi-asset funds – Balanced Plus, Capital Plus and Balanced Defensive – charge the same fixed fee of 1.25%.

Overall, this is commendable. Lower fees mean investors see more of the performance Coronation earns for them. It’s also clear acknowledgement that fees are becoming a differentiator.

However, while Coronation is moving in the right direction, it’s not quite the leading light it could be.

Consider that boutique manager Perpetua also reduced the fee on its balanced fund. It had been charging a 1.25% annual management fee, with a performance fee. It’s cut this to a 0.65% fixed annual management fee.

This is a huge reduction – one that seriously challenges ideas about what active management should cost in SA. It shows that there’s significant room for fees to come down.

It’s significant that a fund with just R35 million under management charges an annual fee almost half that of Coronation’s Balanced Plus fund, with assets under management of R93 billion.

But Perpetua isn’t the only firm Size Annual management fee with a more attractive fee structure. The table shows a selection of smaller funds with lower fees than the Coronation Balanced Plus Fund. None charge a performance fee.

Of course, many other funds charge higher fees. But that doesn’t detract from the significance of these firms competing with Coronation on price.

Asset management is all about scale. It doesn’t cost significantly more to run a fund with assets of R90 billion than it does one of R10 billion.

Coronation has the size advantage. It should easily be able to charge lower fees than any other manager on the above list and still be enormously profitable.

Yet it seems there are other managers engaging more seriously with the question of what investors should be paying for active management, rather than asking what managers can get away with charging.

Perpetua’s annual management fee is now lower than the 0.68% annual management fee on the Satrix Balanced Index Fund.

That’s a serious challenge to other active managers – even to those offering passive balanced products.

If Perpetua can sustain itself off these fees, then other managers have a lot of explaining to do to justify their costs.