Portfolio Solutions – Fee Review
Engagement at a glance
This client, an Australian pension scheme, sought assistance to conduct a full value-for-money review of the management fees it was paying for investment services. The review was intended to be comprehensive: the client wanted to assess the entirety of its >AUD 10 billion portfolio, which encompassed both public and private market allocations.
Due to ongoing regulatory pressure from the Australian Prudential Regulation Authority, the client wanted to achieve real improvements on the fees it was paying to its external asset managers. The scale of the task was significant: the pension plan had slightly more than half of its assets allocated to public market strategies and slightly less invested with alternative and private market strategies. The assessment, which focused exclusively on public market mandates, was further complicated by the client’s decision to include third-party managers that were capacity-constrained or soft-closed in the fee review, which made the prospect of successful negotiations more challenging.
Laying the groundwork for successful review: as a first step, bfinance worked closely with the client to review existing portfolio data, mapping underlying strategies, market exposures, manager performance, fees paid—and even subjective measures, such as client satisfaction with the managers’ services.
Establishing peer group benchmarks: to facilitate analysis, bfinance created peer groups that accounted for the size of assets under management and strategy specifics to effectively benchmark the client’s current allocations by fees paid and services received. With this comparison in hand, bfinance estimated the potential savings available for each individual mandate.
Modelling performance and testing assumptions: as part of the process, bfinance conducted additional analysis, breaking down performance into its component drivers to determined how much added value the managers were providing. At this juncture in the process, bfinance also introduced information from its own extensive manager database and asset-class research specialists.
Preparing an action plan for negotiations: bfinance prepared a full assessment and negotiation plan that incorporated quantitative analysis and qualitative insights; the team also proposed an approach for each individual manager and refined its negotiation rationale with the client’s input to maximise the probability of a successful outcome.
Leveraging analysis to encourage discussion: bfinance led negotiations with the targeted public markets managers (private markets and alternatives were not included) and achieved average fee savings of more than 10% across the group. On a standalone basis, the largest single fee reduction was approximately 75% on a specific mandate. The bfinance team also worked with the managers on service improvements to enhance and strengthen their relationship with the client.