The 2021 CIO Sentiment Survey shows that asset owners still face rising costs despite the accelerated shift to digitalisation, travel bans and home working, not to mention years of concerted effort to drive down costs and investment fees, particularly via transparency initiatives.
In a key take-home from the 2021 CIO Sentiment Survey, respondents name reducing investment costs around new products, operations or outsourcing as a key 2021 priority.
More than ever investors place importance around costs with 80 per cent of 2021 respondents citing reducing investment costs as important compared to 61 per cent of respondents in 2020.
Worryingly, many funds’ efforts to reduce costs have yielded limited results, with funds registering the same total investment costs relative to assets in 2021 as they did in 2020 - and sharply higher than 2019.
Importance of reducing investment costs
By count of respondents, 2021
The reasons are linked to a variety of factors, including higher fees on products tied to boosted allocations to expensive alternatives, active equity and niche asset classes. For example, already high fees for investing in private equity and debt funds, and hedge funds, are likely to increase increasing further as investors compete for a place in fewer deals.
Elsewhere, the increased spend on technology including data gathering and analysis, software and hardware to ensure the ability to work remotely, and a spike in the number of manager relationships and the associated fees is also adding to costs.
In one potentially harmful consequence, stubbornly high costs will maintain the pressure on high return handles, warns Anthony Skriba, senior consultant, Casey Quirk.
“Costs continue to rise and as this starts to impact plan returns, it is likely that most will have to maintain aggressive (return) targets.”
Total investment costs relative to assets
Bps, 2019 - 2021
Primary Cost Drivers
Increasing allocations to alternatives and niche asset classes drive demand for higher products (25% increase from 2020)
Technology for data, software/hardware and servicing enables smoother transition in the remote environment
An ever-expanding universe of managers and products requires significant resources to screen properly
Flat management fee structure places equal weights on products across portfolios