JP Morgan, BlackRock, Polar among growing number of managers cutting fees to attract investors
BlackRock, JP Morgan, and Polar Capital are some of the big names among the growing roster of investment companies that have cut management fees in the first half of 2020, as the industry tries to stay attractive to investors amid uncertain markets.
Investment bank and asset manager JP Morgan has cut fees for four of its trusts: JP Morgan European, JP Morgan European Smaller Companies, JP Morgan Japan Smaller Companies, and JP Morgan Claverhouse, its UK equity income offering.
One of these, JP Morgan European Smaller Companies, scrapped its tiered fees system in April, charging at a rate of 0.85 per cent of net assets, no matter how much is invested. The annual fee previously stood at 1 per cent on net assets up to GBP400 million and 0.85 per cent on net assets thereafter.
The trust’s chairman, Marc van Gelder, commented at the time that the move “ensures that the company's fee arrangements remain competitive, provides a saving for our existing shareholders and should make the company more attractive for investors".
The data was compiled by the Association of Investment Companies (AIC), which has flagged 18 companies changing or lowering fees in the first half of 2020.
“Investment companies continued to lower charges, with a further 18 changing their fees to benefit shareholders. It’s encouraging to see investment company boards continuing to negotiate lower costs, particularly during the difficult times of the past few months,” says Ian Sayers, chief executive of the AIC.
BlackRock Energy and Resources Income also removed tiers from its fee calculations. In March, it reduced its fees to 0.8 per cent yearly, having previously charged 0.95 per cent on the first GBP250 million of gross assets and 0.9 per cent thereafter.
A survey by Consultancy Alpha FMC in June found that 60 per cent of asset managers believe there will be continued pressure to reduce fees for 10 years or more, with regulators, institutional clients, and competitors driving a race to the bottom for asset management fees.
Others that have recently cut fees include property investors Custodian REIT and Urban Logistics REIT, and private equity funds LMS Capital, Apax Global Alpha, and Oakley Capital Investments.
Apax Global Alpha sliced a chunk off its fees, cutting from a previous rate of 1.25 per cent of the value of the derived portfolio and eligible private equity, down to 1 per cent for derived debt, and 0.5 per cent for derived equity and eligible private equity. It also capped overall fees charged at 3 per cent of net assets a year.
Edinburgh Investment, the European Investment Trust, Riverstone Energy, Aberdeen Asian Income, Menhaden, European Assets, and New Star also made changes to fee structures. These included lowering management fees, abolishing performance fees and introducing tiered fees.
A number of these trusts are focused on European companies. Data from Refinitiv suggests that Europe’s long-term investment funds were hit hard by the pandemic in the first quarter of the year, with estimated outflows of EUR160.3 billion.
The Association of Investment Companies (AIC), says investment companies have been recovering strongly from coronavirus market falls, with industry assets reaching a new all-time high of GBP201.7 billion at end of June.
Fundraising stood at GBP2.27 billion raised by existing investment companies in the first half of 2020, compared to GBP4 billion of secondary fundraising in the same period last year.
“Despite the challenges of Covid, the first half of 2020 saw the continuation of themes which have been prevalent in recent years. There was further strong fundraising by existing investment companies, particularly those investing in income-generating alternative assets where the investment company structure is so well suited,” adds Sayers.