Fund selectors, wake up and negotiate your fees!

A poll at Expert Investor Europe’s Alternative Ucits Congress in Versailles earlier this month showed that little over half of delegates negotiate the fees they pay for their alternative investment funds. Dan Kemp of Morningstar finds this figure ‘surprisingly low’, and suggests that fund selectors should attach more importance to costs.

Fund selectors, wake up and negotiate your fees!


According to Kemp, who is chief investment officer at Morningstar Investment Management, the fact that the vast majority of assets in the alternative Ucits space is invested in funds charging fees between 150 and 200 basis points, shows costs don’t make a difference to fund selectors.

“In the chart [below] you can see that the distribution of assets is almost perfectly in line with the distribution of fees, suggesting that fund selectors are not using costs as a factor in fund selection,” he says. “I’m amazed that only 55% of the experienced fund buyers at the congress negotiate fees. I would have expected this to be a clearer majority, around 75%.”

But what about cost consciousness when it comes to long only equity funds? The clustering of assets and funds is just as pronounced as in alternative Ucits funds, as shown in the graph below. Moreover, while alternative Ucits funds have the reputation of being expensive, there is not a big difference in costs at all: the average OCF (ongoing cost figure) of long only Ucits funds is fairly similar to that of their alternative cousins.