Investment fund costs for both retail investors and institutions have become more volatile in 2022, according to data analysed by London-based Fitz Partners.
About one third - or 35 percent - of funds whose fees were changed last year have witnessed an increase in their charges to investors, with institutional equity funds leading the charge, according to data on around 40,000 fund share classes analysed by Fitz.
Fees were changed last year for 17 percent of the fund classes in Fitz’s database. About two thirds of the funds whose fees were changed last year experienced decreases in charges, which can be regarded as “a relief for investors,” said Fitz.
‘Inflationary pressures’
Commenting on the increases, asset managers and service providers are “passing on inflationary pressures to their clients,” Fitz concluded, in particular to institutions investing in equity fund classes, where the increase was nine basis points. For Luxembourg-domiciled equity classes, the average increase was less, at seven basis points. The average decrease in institutional equity in classes was around 10 basis points, both overall and for Luxembourg.
The London-based research firm, an expert in fund fees and expenses, analysed the costs as measured by the ongoing charges figure, a metric known as OCF that encapsulates all fund operational costs.
“This could highlight the inflationary pressures that asset managers and service providers alike have been facing, thus forcing them to pass these costs onto the investors through increasing fund fees, thereby increasing OCF levels,” said Hugues Gillibert, Fitz Partners CEO.
Luxembourg fund costs ‘in line’
Generally speaking, cost changes of Luxembourg-domiciled funds did not deviate from the general changes in the market. “Luxembourg-only funds change in costs are pretty much in line with the overall data,” Gillibert told Investment Officer.
Retail fund classes, especially those of bond and equity assets, demonstrated more pronounced volatility in their OCF than their unbundled and institutional counterparts. Retail investors experienced wider cost fluctuations for bond funds, the data showed, ranging from a 12 basis point drop to a 7 point rise, compared to a range for non-retail share classes that showed changes between -8 points and +6 points.
Average OCF increases and decreases
Source: Fitz Partners
Esma, CSSF eyeing fund costs
Fitz’s analysis comes at a time that EU securities supervisors are paying more and more attention to the costs that asset managers charge for their investment funds. The European Securities and Markets Authority, or Esma, in May advised the European Commission that there is a need for legislation to make sure investors do not bear costs that are considered excessive, unnecessary, or unreasonable when they put their money in investment funds.
In Luxembourg, financial supervisor CSSF had ordered the industry to review its pricing mechanisms for investment funds by April of this year. For CSSF, the supervision of costs and fees charged to funds remains a priority, it said in its 2022 annual report, adding that investigations would be performed this year.