Despite increasing pressure from EU securities supervisors to lower the costs of investment funds and provide value for money, more than one third of funds have witnessed an increase in their charges to investors during 2022, with institutional equity funds leading the charge, according to data on around 40,000 fund share classes analysed by Fitz Partners.
Asset managers and service providers are passing on inflationary pressures to their clients, Fitz concluded, in particular to institutions investing in equity funds, where the increase was nine basis points. For Luxembourg-domiciled equity funds, the average increase was less, at seven basis points. The average decrease in institutional equity in classes was around 10 basis points in , both overall and for Luxembourg.
The London-based research firm, an expert in fund fees and expenses, concluded that 17 percent among around 40,000 fund share classes in its database have changed their fee structure in the 12 months that ended last December. Among the funds that made a change, 35 percent showed an increase in costs as measured by the Ongoing Charge 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. “More strikingly, fees for any share class types across equity or bond funds still show higher reductions than increases, which would be a relief for investors.”
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 share 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.
While the overall trend in fund fees still points downwards, the research found that the largest increases took place in institutional share classes, normally considered the most competitive in terms of pricing, said Gillibert. The higher charges applied in particular to institutional equity funds, which were up nine percent.
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.