Cost efficiencies could slash UK pensions’ fees by around a third
The average UK actively managed pension fund could save around GBP700,000 a year in fees through centralisation and standardisation of investment management, administration and trading functions, according to calculations by The Asset Management Exchange (AMX).
This is the equivalent of around one sixth of a typical sponsor’s deficit contribution.
Taking the example of a hypothetical GBP250 million actively managed pension fund, with five different investment managers, AMX calculates that annual investment management costs could total some GBP1.4 million, while additional administration and transaction costs, replicated across five managers, could add another GBP700,000 in fees.
While these figures are variable according to each scheme’s investment strategy, the AMX calculations suggest that, by sharing administration and transaction resources through a centralised structure, such a pension scheme could cut fees by between 28-39%. This would mean savings of between GBP600,000-800,000 annually, or around one sixth of a typical sponsor’s deficit contribution.
Oliver Jaegemann (pictured), Global Head of AMX, says: “According to a recent survey by the Pensions Regulator, schemes estimate their total costs to be around GBP540,000 a year. Our calculations suggest that many UK pension funds could therefore be underestimating their costs by almost four times.
“Greater transparency in fees paid by institutional investors, though obviously a good thing, is only really useful if it inspires meaningful actions to reduce costs.
“Under the current industry model, each manager and asset owner transacts individually and basic administrative functions are needlessly replicated across a portfolio of asset managers, wasting significant.sums.
“By centralising these functions and reducing or eliminating duplication, we believe that the UK pensions sector could save millions, even using cautious assumptions.”
AMX is a pioneering digital platform which aims to fundamentally transform institutional investment by providing asset owners with a smarter, easier and cheaper way to engage with managers, while offering managers access to significant capital. Through its centralised back office and standardised fund infrastructure, AMX bypasses the investment industry’s significant cost and resource duplication, delivering scale benefits to both sides of the market while improving transparency and asset owner control.
AMX is open to institutional asset owners to benefit from the economies of scale which will increase in line with asset growth. In addition the exchange takes on the development of product packaging allowing asset managers to focus solely on investing.