Asset managers halve fees to attract investors to new mutual funds

fee pressure

One third of asset managers in Europe are offering lower fees on selections of share classes in a push to make investment into newly launched funds more attractive, finds London-based research firm Fitz Partners.

Fees on so-called “early-bird” share classes fall to almost half the standard rate, with these initial shares charging average management fees of 0.5 per cent of the assets.

Fitz’s data shows that more established equity funds charge fees of 0.95 per cent, on average. 

Hugues Gillibert, chief executive officer of Fitz Partners, says it is “no surprise” to see asset managers offering large discounts for early investors, but notes that the trend has escalated in recent years.

“Incentives offered to first investors in new fund launches have always existed in various degrees but in the last few years we have seen a growth in the number of these early-bird share classes being launched.” 

Gillibert adds: “We have also seen a growth in the number of assets managers across Europe launching these seeding share classes with preferential fee levels,” 

For fixed income funds, the rate of discount offered by early-bird share classes is slightly lower at 40 per cent, with median early-bird management fees for bond funds dropping to 0.36 per cent against 0.6 per cent for more mature funds.

As for the motivation of these asset managers, Gillibert comments: "It is an indication that in the case of new fund launches, pricing can make a difference and can compensate in some way for new funds’ lack of track record.”

In recent years, the investment management industry has been under pressure to reduce management fees in order to compete with passive investment products, popular with investors for their ultra-low fees.