2014 investment management fee survey: u.s. institutional fund sponsors and investment managers

8/17/2019 2014 Investment Management Fee Survey: U.S. Institutional Fund Sponsors and Investment Managers

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2014 Investment Management

Fee SurveyU.S. Institutional Fund Sponsors and Investment Managers

CALLAN

INVESTMENTS

INSTITUTE

Survey


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2014 Investment Management Fee Survey 1Knowledge. Experience. Integrity.

Table of Contents

Executive Summary 2

Respondent Group Prole 4

Total Fund Level Fees 6Fee Revenues 9

Performance-Based Fees 11

Investment Manager Published Fee Reviews and Alterations 17

Fund Sponsor Fee Reviews 19

Fee Negotiations 20

Published Versus Actual Fees by Asset Class 25

Future Manager and Product Changes 43

Perception of Value-Added Justifying Fees 45

Top Fee Concerns 46

Appendix I: 2013 Published Fees for Additional Asset Classes 47

Appendix II: 2011 Published and Actual Fees by Asset Class 49


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S ee page 6.

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0 bps

40 bps

0 bps

bps

2009 22011

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Callan’s 2014 Investment Management Fee Survey provides a current report on institutional investment management fee

payment practices and trends. To collect this information, Callan sent an electronic questionnaire to a broad sample of U.S.-

based institutional fund sponsors and investment management organizations. Respondents provided fee information for cal-

endar year 2013 (specic dates varied by organization, but the majority were as of December 31, 2013), and perspective on

fee practices and perspectives for 2014. We supplemented this data with information from Callan’s proprietary databases to

establish the trends observed in this report.

Callan conducted similar surveys in 2004, 2006, 2009, and 2011. We offer commentary regarding differences, where relevant,

between historical survey results and the 2014 ndings, along with observations reecting both long- and short-term trends.

Seventy-two fund sponsors representing $859 billion in assets, and 211 investment management organizations with $15 tril-

lion in assets under management, provided detailed fee practices and data on 15 asset classes. Results were supplemented

by actual and published fee information sourced from Callan’s fund sponsor and investment manager databases, as well as

other industry sources.

Key Findings

Investment management fees represent 46 basis points (bps), on average, of fund sponsors’ total assets, up from 37 bps in

2009. The difference between the median and average has climbed over this time period. Other data in Callan’s fee survey

also reveals a divergence between the funds that pay the most and those that pay the least in investment management fees.

The range between funds that paid the most (10th percentile) and those that paid the least (90th percentile) increased dra -

matically: from 56 bps in 2009 to 73 bps in 2013. Differences in investment policy, and notably asset allocation, can lead to

substantial disparity in fees. While some funds are increasingly looking to low-cost, public market index strategies, others are

investing a greater portion of their portfolio in high-cost alternative assets. Other key survey ndings include:

• Alternatives, which are consistently the most expensive asset class, are facing fee compression: the median total

asset class fee declined from 134 bps in 2009 to 99 bps in 2013, and the 90th percentile fell from 174 bps to 152

bps. Large allocations to alternatives can greatly increase overall investment management fees. Correlations

between percentage of total portfolio allocated to alternatives and fees paid (in bps) were strong in 2013 (+0.70).

Executive Summary


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S e e p age 11.

Executive Summary (continued)

• Total U.S. and non-U.S. equity fees paid increased marginally from 2009 to 2011, but declined from 2011 to 2013. Median

U.S. equity fees run about 60% of their non-U.S. counterparts. Non-U.S. fees are typically higher in part due to research

expenses. Fixed income median expenses were at from 2009 to 2013.

• By fund type, endowments and foundations paid more than twice as much (median 73 bps) for investment managementfees as public and corporate funds (34 and 32 bps, respectively). The endowments and foundations in our survey have the

largest allocation to alternatives, and were also smaller funds, which tend to pay more than large funds.

• Over the past two years, published fee schedules changed very little across the publicly traded asset classes examined in

this report. Investment managers review published fee schedules frequently, but rarely change them. For public equities,

actual fees generally increased for larger accounts (greater than $75 mill ion) and were at or declined for smaller accounts.

• In real estate, published and actual core open-ended commingled fund fees saw increases in the 1 to 9 bps range relative to

2011. Value-added fees grew more substantially (10 to 15 bps), while fees for REITs were relatively at. Conversely, private

equity (separate accounts and fund-of-funds) and hedge fund-of-funds fees declined over the last few years.

• Fund sponsor fee reviews have increased in frequency relative to 2011. Close to half (45%) of fund sponsors review fees

annually, up from 34% in 2011. An additional 16% review fees more than annually (versus 11% in 2011).

• While investment managers are condent in the value-added they provide, fund sponsors’ top concern regarding fees is

whether or not active managers are providing the value-added to justify the fees.

• Investment managers reported a decline in the percentage of revenues that cover base costs for strategy management

while a greater percentage of fee revenues are allocated to rms’ prot margins and bonuses. On average, investment

managers allocate 42% of fee revenues to cover the costs of managing the product, including base compensation, down

from around 50% in previous surveys. Bonuses take an average of 24% of fee revenue, up from 19% in 2011 and similar

to levels recorded in 2009. In 2013, prot represented 34% of fee revenue, on average.

• As alternative asset classes become more common in institutional portfolios, so does the use of performance-based fees.

More fund sponsors report paying performance-based fees for at least one account in 2013 (55%) than in 2011 (35%),

putting the gure closer to what was observed in 2009 (59%). The asset allocations of the respondent groups inuence

this gure, as exposure to private markets—including hedge funds, hedge fund-of-funds, private equity, and real estate—

accounts for much of the use in performance-based fee structures.

Other 5%

ore than everyfive years 4%

Between two andfive years 5%

Never 6%

hen a new fund/product

i stablished 10%

nually 3%

As need

67%

S e e p age 18.


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Seventy-two fund sponsors representing approximately

$859 billion in assets responded to Callan’s 2014 Investment

Management Fee Survey . Responses are supplemented by

fee data from 43 additional funds in Callan’s Fund Sponsor

Database (overlap eliminated).

The majority of fund sponsor respondents are public dened

benet plans (41%). Corporate dened benet plans make

up about one-third of respondents (34%), and 14% are

endowments/foundations. “Other” fund types (11%) include

operating and insurance guarantee funds and various not-

for-prot trusts.

We divide respondent funds into ve groups by size:

• 22% of respondents have fund assets less than

$500 million

• 21% have assets between $500 million and $2 billion

• 19% have assets between $2 and $5 billion

• 18% have assets between $5 and $15 billion

• 19% have fund assets greater than $15 billion

The fund sponsor respondent group is skewed toward larger

funds when compared to the U.S. fund sponsor marketplaceas a whole, as represented by Standard & Poor’s Money

Market Directories 2014 Database, where around 77% of

funds have less than $1 billion in assets. The majority of

these funds’ assets are actively managed (75% average).

While several funds manage a sizable portion of their assets

internally, on average 95% of assets are managed externally.

Respondent Group Prole: Fund Sponsors

Other 11%

Public 41%

Corporate 34%

Endowment/

Foundation

14%

By Fund Type

By Assets

< $500 mm

22%

$500.1 mm

to $2 bn

21%

$2.1 to $5 bn

19%

$5.1 to$15 bn

18%

> $15 bn 19%

Note: Throughout this survey, charts may not sum to 100% due to rounding.


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Survey results incorporate responses from 211 investment

management organizations, supplemented by Callan’s

Investment Manager Database of more than 1,500 rms.

The majority of respondents identied themselves as

“investment managers” (75%) and 17% indicated they are

registered investment advisors. Firms classied as “other”

include LLCs and other types of corporations.

Respondents are diversied by size based on total assets

under management as of December 31, 2013. Thirty-ve

percent manage less than $5 billion while 30% manage

between $5.1 and $30 billion. The remaining 35% manage

greater than $30 billion in assets.

Nearly all of respondent assets (96%) are actively managed.

Fixed income assets make up close to half of total manager

respondent assets under management. U.S. equity styles

comprise 17%, non-U.S. and global equities another 16%,

and alternatives (including real estate) 9%. “Other” includes

asset liability management, beta overlay management,

liquidity, multi-assets, outsourced CIO, futures and options,

currency, and other various strategies.

Respondent Group Prole: Investment Managers

By Firm Type

By Assets Under Management(as of 12/31/13)

Bank/Trust3%

Investment

Manager 75%

RIA 17%

Other 5%

< $1 bn 8%

$1 to $3 bn

16%

$5.1 to $10 bn

13%$10.1 to $30 bn

17%

$30.1 to

$100 bn

17%

> $100 bn

18%

$3.1 to

$5 bn

11%

Other 9.1%

Large Cap 11.7%Mid Cap 2.2%

Small Cap 2.3%

Other U.S. Equity 0.7%

Non-U.S. Equity 7.1%

Global Equity 5.6%

Emerging Markets 3.3%

Core Plus 6.0%

High Yield 3.4%

Real Estate/REITs 3.5%

Core Fixed 9.6%

Other U.S. Fixed 9.2%

Non-U.S. Fixed 5.3%

Private Equity 1.5%

Hedge Funds 1.5%

Hedge Fund-of-Funds0.8%

Absolute Return 1.5%

Balanced 5.7%

Money Market 9.4%

Commodity Funds 0.4%

Infrastructure 0.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Asset Class Distribution($15 trillion in combined assets)


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0 bps

20 bps

40 bps

60 bps

80 bps

100 bps

2009 20132011

10th Percentile 72.0 72.1 84.0


Median 30.9 36.8 31.7



Average 37.1 44.6 46.4

# of Observations 55 58 64

Total Fund Level Fees

The bar charts represent overall investment management

fees as a percent of total fund assets for three separate cal-

endar years. Fund sponsors paid a median 32 basis points

in investment management fees in 2013, representing a

marginal increase relative to 2009 (3%). The range of fees

is notably wide, highlighting a larger trend of divergence

between the funds that pay the most and those that pay the

least in management fees.

Over the same time period, the range of fees paid increased

dramatically and the difference between the median and

average has climbed. The range between funds that paid

the most (10th percentile) and those that paid the least (90th

percentile) was 56 bps in 2009 and rose to 73 bps in 2013. Average fees paid increased from 37 bps to 46 bps.

These statistics point to larger differences in invest-

ment policy, and notably asset allocation. Large allo-

cations to alternatives, which are the most costly, can

greatly increase overall investment management fees.

Correlations between percentage of total portfolio allocated

to alternatives and fees paid (in bps) were strong at 0.70

in 2013, 0.64 in 2011, and 0.56 in 2009. Alternatives are

also more likely to utilize performance-based fee arrange-

ments, which led to lower fees for some investors in 2009

after many strategies suffered poor performance in 2008.

Consistent with Callan’s previous fee surveys, investment

management fees are most frequently calculated on a quar-

terly basis; 47% of fund sponsors use quarter-end asset mar -

ket values as the base for fee calculations.

At what point(s) are market valuescalculated upon which your feesare based?*

*Multiple responses allowed.

Other

Quarter end

Varies by

manager

Quarter beginning

47%

32%

18%

6%

12%

Month end

Investment Management Fees Across Total Fund (bps)

Correlations: Investment Management FeesPaid (bps across total fund) and Percentage Allocated to Alternatives

2009 2011 2013

0.58 0.64 0.70


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Fees by Fund Type and Size

We examine median investment management fees paid as a

percentage of total fund size by fund type and size over time.

Endowments/foundations have consistently paid the most in

management fees at 52 bps in 2009, 77 bps in 2011, and 73

bps in 2013. Higher fees are a result of two factors: larger

allocations to more-expensive alternative asset classes,

and fund size, as many of the endowments/foundations that

responded to this survey have less than $500 million in total

fund assets. We observe in the chart below that fund size

also inuences total investment management fees paid.

Public funds have paid slightly more than corporate funds

over time, though the gap shrank in 2013 to just two bps.

Smaller funds pay a premium for investment management

relative to other fund sizes: funds with less than $500 million

in assets paid 30% more than medium funds ($500 million to

$5 billion in assets) and 60% more than large funds (greater

than $5 billion in assets). The largest funds enjoy price breaks

for investing more money in individual mandates, as we reveal

later in the survey when we examine fees by asset class.

Endowments/Foundations

Public

Corporate

0 bps

20 bps

40 bps

60 bps

80 bps

201320112009

Large (>$5bn)

Medium ($500mm - $5bn)

Small (


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Actual Fees Paid Over Time

0 bps

50 bps

100 bps

150 bps

U.S. Equity Non-U.S./Global Equity Fixed Income Alternatives

2009 2011 2013

U.S. EquityNon-U.S./Global

Equity Fixed Income Alternatives

2009 2011 2013 2009 2011 2013 2009 2011 2013 2009 2011 2013

10th percentile 43 65 57 80 84 72 43 36 49 174 205 152

25th percentile 35 46 38 54 61 58 27 28 28 149 151 140Median 24 29 22 41 45 37 18 20 20 134 96 99

75th percentile 16 15 15 28 32 28 11 11 13 85 75 80

90th percentile 9 6 5 19 20 14 6 5 6 51 42 49

Average 28 35 31 43 49 42 25 21 25 121 122 119

# of observations 44 50 57 38 44 54 43 49 54 28 32 41

We rst look at actual investment management fees paid

as a percent of individual asset classes over time to reveal

longer-term trends. The chart reveals median total fees paid

by asset class as reported by the fund sponsor respondents

to the 2014 questionnaire. The table below reveals addi -

tional data, including the range of fees from 10th to 90th

percentile. The size of the allocation to an asset class, as

well as that asset class’s fee levels, inuence the amount of

fees paid relative to total fund assets.

Alternatives (including real estate, hedge funds, private

equity, and other asset classes) are consistently the most

expensive asset class, at an average of around 120 basis

points (bps) over the time periods examined. This assetclass also reveals the widest range from the 10th to 90th

percentile over time at around 100 to 160 bps. While the

median declined substantially from 134 bps in 2009 to 99

bps in 2011, the average held steady at around 120 bps.

U.S. and non-U.S. equity median and average fees followed

a similar pattern over time, increasing marginally in 2011 but

declining in 2013. Median U.S. equity fees run about 60%

of their non-U.S. counterparts. Non-U.S. fees are typically

higher in part due to research expenses, which can be more

extensive particularly in frontier and emerging markets and

other less-covered areas.

Fixed income median expenses were at over the time

period examined. This asset class has the narrowest range

between 10th and 90th percentile, around 30 to 40 bps over

the time periods examined.

Median Actual Fees by Asset Class (basis points as a percent of total asset class value)


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Callan asked investment managers about their change in

year-over-year fee revenue for a ve-year period. The aver -

age results are shown alongside historical data from our

previous surveys.

Changes in investment management fee revenue growth

peaked in 2006 between 21%–30%, on average, and then

dove with the 2008 market crisis. Fee revenue growth recov-

ered in 2010 to 11%–20%, and then tapered off at 1%–10%.

Managers estimate this level will be sustained through the

end of 2014.

New cash ow declined slightly (by 10%) after plateauing at

21%–30% from 2005 to 2007, and has reached a new normat 11%–20%. Managers expect new cash ow will contrib -

ute the same amount to fee revenue growth in 2014 as it

has for the past six years.

Average investment manager pre-tax prot margins have

shifted between 11%–20% and 21%–30% over the past 12

years. In recent years, pre-tax prot margins settled in at

11%–20%, and manager respondents project an uptick to

the 21%–30% range for 2014.

Fee Revenue Generation and Protability: Investment Managers

Calendar Year Revenue Firm Protability (Investment Manager Average Response)

’14E’13’12’11’10’09’08’07’06’05’04’03’02

0%

1% to 10%

11% to 20%

21% to 30%

How has your rm’s investment management fee revenue changed from the previous calendar year?

’14E’13’12’11’10’09’08’07’06’05’04’03’02

0%

1% to 10%

11% to 20%

21% to 30%

’14E’13’12’11’10’09’08’07’06’05’04’03’02

0%

1% to 10%

11% to 20%

21% to 30%

What do you estimate is the percentage change in fee revenue generated from new cash ow (either

existing or new accounts), as opposed to fee increases due to performance?

What were your pre-tax prot margins each calendar year?


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Investment managers appear to be leaner operations,

reporting a decline in base costs for strategy management

as a percentage of revenues. A greater percentage of fee

revenues are allocated to rms’ prot margins and bonuses

as base costs have declined. On average, investment man -

agers allocate 42% of fee revenues to cover the costs of

managing the product, including base compensation, down

from around 50% in previous surveys.

Bonuses are an important component of total compensa-

tion and costs—the majority (84%) of respondent rms pay

a bonus to the individual or team responsible for managing

the product. Across asset classes, an average of 24% of fee

revenue is allocated to pay bonuses, up from 19% in 2011and back to levels recorded in 2009.

The nal portion of fee revenue ows back to the investment

management rm as prot. Across asset classes, this rep-

resents 34% of fee revenue, on average, which ows to the

bottom line, up marginally from 31% in 2011.

Fee Revenue Allocation

How are fee revenues allocated?A

=

+

+

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Hedge Funds

Real Estate

Non-U.S. Fixed Income

High Yield Fixed Income

Core Plus Fixed Income

Core Fixed Income

Emerging Market Equity

Global Equity

Non-U.S. Equity

U.S. Small Cap Equity

U.S. Mid Cap Equity

U.S. Large Cap Equity

Break-even Base to Cover Costs

Bonus to Manager/Team

Total Firm Revenue

Profit Margin to Firm Number of

Respondents

41% 36%

39% 22% 38%

41% 27%

42% 18% 40%

36% 28% 37%

51% 22% 27%

35%

46% 32%22%

49%

32%

32%

27%

33%

24%

33

32

17

15

20

12

6B

11

7B

23%

45% 43% 1312%

35% 30% 6B35%

46% 33% 2422%

A Average responses.B Note the small number of respondents.


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On this page we present average responses to questions

about performance-based fee usage amongst both fund

sponsors and investment managers. We present data col-

lected in 2014 alongside answers to the same questions

posed in previous years Callan produced this survey.

More fund sponsors report paying performance-based fees

for at least one account in 2014 (55%) than in 2011 (35%),

putting the gure closer to what was observed in 2009

(59%). The asset allocations of the respondent groups inu-

ence this gure, as exposure to private markets—including

hedge funds, hedge fund-of-funds, private equity, and real

estate—accounts for much of the use in performance-based

fee structures.

The percentage of investment management rms that offer

performance-based fees increased over the time period

examined: from 64% in 2009 to 65% in 2011 and 75% this

year. However, the use of these fee arrangements declined:

17% of managers’ clients pay performance-based fees in

2014 compared to 32% in 2011. Further, the percentage

of managers’ clients asking about the availability of perfor-

mance-based fees dipped from 37% to 23% over the same

time frame.

Performance-Based Fees: Usage

Fund Sponsors (Average Responses)

Mandates awarded in the past18 months use performance-based fees

Fund’s managers are paidperformance-based fees

Fund sponsor respondents payperformance-based fees

0%

20%

40%

60%

80%

201420112009

Investment Managers (Average Responses)

201420110%

20%

40%

60%

80%

2009

New business opportunities thathave asked about the availabilityof performance-based fees

Firm’s clients that payperformance-based fees

Investment manager respondentsthat offer performance-basedfee arrangements


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More fund sponsors are turning to managers than custo-

dians to value assets in accounts with performance-based

fees, a reversal of the trend observed in 2011. The majority

of fund sponsors rely on their managers exclusively (44%),

compared to 23% in 2011. Those that look to custodians ex-

clusively declined from 46% in 2011 to 35% in 2013, as did

the percentage that source valuations from both their cus-

todian and investment manager (15% in 2013 from 23% in

2011).

In turn, investment managers rely primarily on custodians

(64%), but additionally report using in-house valuations,

third-party appraisals, and other sources.

Fees are most frequently based on total capital commitments

for funds that can take years to invest (e.g., real estate, pri-

vate equity, etc.), although a few respondents indicate fees

are based on invested capital.

Performance-based fees are typically assessed over mul -

tiple years and there is no standard regarding how they are

initially handled. During the fund’s start-up period (before the

performance measurement period has passed) managersand fund sponsors assess fees in multiple ways. Managers

report that fees are most often negotiated in the start-up pe-

riod, while fund sponsors indicate that pro-rating fees is the

most frequent method.

Performance-Based Fees: Mechanics

Fund Sponsor Responses

Custodianand Manager 15%

Other 6%

Manager 44%

Custodian35%

Investment Manager ResponsesA

43%

6%

9%

6%Other

Fund Sponsor

Third Party/ Administrator

Manager

Custodian 64%

What is the source of valuation upon which performance-based fees are based?

A Multiple responses were allowed.

The fund sponsor and investment manager negotiate a fee schedule for the start-up period.

Fees are handled according to the published fee

schedule during the first year (or other established measurement period).

Fees are pro-rated. Until a one-, three- or five-year

track record is established, inception-to-date results are annualized to calculate fees.

Other

34%

10%

18%

43%

14%

57%

29%

7%

Managers Fund Sponsors

How are fees handled during the start-up period?A


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Hedge Funds

Always Frequently RarelyNumber of

Respondents

55% 9%

30% 30%

6%

24% 33%

9% 9%

11% 11%

4%

10% 14%

6%

13%

28%

9%

11

22

21

7 A

15

18

25

18

12% 12%

5 A

6% 11% 18

41% 18%

10

Core Fixed IncomeCore Plus Fixed Income

Commodity Funds

Small Cap Equity

U.S. Large Cap Equity

Mid Cap Equity


Infrastructure

Other Equity

Non-U.S. Equity


Private Equity

Global Equity

Other Fixed Income

Hedge Fund-of-Funds

Real Estate

0% 100%20% 40% 60% 80%

29%

20% 20%

13%

8% 8%

6% 22%

4% 13%

22

17

16

18

23

23

21

Percentage of Respondents

36%

20%

19%

24%

9%

11%

17%

10%

11%

6%

17%

14%

14%

20%

13%

32%

11%

22%

20%

14%

68%

67%

67%

63%

56%

70%

71%

67%

23%

57%

40%

73%

52%

61%

61%

5%

5%

5%

Sometimes Never

When asked about their usage of performance-based fees

across asset classes, alternatives topped the list. Fund spon-

sors cite hedge funds, private equity, and hedge fund-of-funds

most frequently, followed by real estate and commodity funds.

Performance-based fee arrangements are the least com -

mon for core and core plus xed income and various equity

strategies.

Performance-Based Fees: Top Asset Classes – Fund Sponsors

For which asset classes do you most frequently have performance-based feearrangements?

A Note the small number of respondents.


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Similar to fund sponsors, investment managers indicated

that the greatest percentage of their clients pay perfor-

mance-based fees for alternatives, including hedge funds

(75%), real estate (62%), hedge fund-of-funds (51%), and

private equity (37%). Within U.S. equities, small and mid cap

strategies (6%) edged out large cap (4%).

A very small percentage of clients pay performance-based

fees for core and core plus xed income strategies (1% and

3%, respectively).

These responses reect the survey sample, including invest-

ment managers dedicated to one asset class or strategy in

addition to rms that manage multiple asset classes.

Performance-Based Fees: Top Asset Classes – Investment Managers

Indicate the percentage of clients that pay you performance-based fees for each assetclass your rm manages.

Number of

Respondents

75%

51%

5%

37%

28%

6%

0%

6%

3%

25

9

6 A

24

37

26

23

42

20

10% 5 A

4%

54

62% 18

Money Market

Core Fixed Income



Non-U.S. Equity

Large Cap Equity

Balanced


Small Cap Equity

Mid Cap Equity


Commodity Funds

Global Equity

Private Equity

Absolute Return

Hedge Fund-of-Funds

Real Estate

Hedge Funds

66

32

11

26

39

28

4%

6%

5%

1%

9%

4%

0% 20% 40% 60% 80%

A Note the small number of respondents.


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Performance-Based Fees: Samples

Examples of Details for Performance-Based Fee ArrangementsWhile the previous two pages indicate that performance-

based fees are more common for certain asset classes, they

can be used for any asset class. The table shows a sample

of performance-based fees for three potential asset classes.

Base rates are usually a percentage of total fund assets, a

at fee, or are expressed as a percentage (50% to 70%) of

the standard fee schedule effective rate. Minimum fees are

typically the base rate, and the usage of high-water marks

varies. Hurdle rates can be fund- and client-specic, and are

typically a predetermined performance return—a benchmark

or a benchmark plus a specic return target (e.g., S&P 500 +

3%). Performance measurement periods range from one to

ve years, but are most often three years.

Performance-based fees are usually computed based on

one-, three- or ve-year returns for each account against a

benchmark, thus an underperforming year could impact fees

for several subsequent years. High-water marks are not stan-

dard for all fee arrangements, but are frequently included to

ensure managers are not compensated for strong short-term

performance amid poor long-term returns.

Commonly used terminology is dened on the following page.

Core Real Estate

Multi-Strategy

Hedge Fund-of-Funds Large Cap

Base Fee 1.25% – 1.50% 0.75% – 1.25% 0.20%

Hurdle Rate 8% – 10% IRR Hurdle T-Bills 1% over Russell 1000

Participation Rate 15% – 20% 5% – 10% 20%

Performance Measurement Period 3 years 1 year 1 year

Maximum Total Fee (Base + Performance Fees) No Cap No Cap 0.80%


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Base Fee: the fee earned by an investment manager in the absence of any excess return. This is also the minimum fee that

can be earned by an investment management rm.

Excess Return (Gross): the return of the portfolio (gross of fees) less the return of the benchmark or reference index.

High-Water Mark: the peak value an account has once attained and must surpass for the manager to earn the performance

fee. For any given calculation period where a manager underperforms the benchmark, a loss carry foward is accrued. The

manager must outperform the loss carry forward balance prior to earning any future performance fee.

Hurdle Rate: the minimum amount of performance return required before a performance-based fee is paid on top of the

base fee.

Maximum Fee: the highest fee that can be earned by an investment management rm.

Measurement Period: the period over which excess and net excess returns are calculated.

Net Excess Return: the gross excess return less the base fee.

Participation Rate: the percentage of gross excess return paid to the investment management rm.

Performance Fee: the participation rate multiplied by gross excess return.

Standard Fee: the fee earned by an investment management rm based upon its standard “at” or “tiered” rate fee

schedule.

Targeted Excess Return: the gross excess return that the investment manager expects to earn on the investment strategy.

Performance-Based Fees: Commonly Used Terminology


19/56


Relative to Callan’s 2011 Investment Management Fee

Survey , fewer investment managers review published fee

schedules on a regular basis: 51% revisit them at least

annually, down from 63% in 2011. Thirty-three percent of

rms look at fees as needed, up from 9% in 2011. The per -

centage of respondents that assess fees only when launch -

ing a new fund or product did not change much (3% in 2014

compared to 4% in 2011). Managers review published fee

schedules more often than they change them, as detailed

on the following page.

When reviewing fees, investment managers look at multiple

sources. They most frequently turn to competitors (70%),

followed by industry research and/or database providers(66%) and consultants (64%). Industry surveys (58%) and

clients (55%) are also used by more than half of manager

survey respondents.

Investment Manager Published Fee Reviews

What industry sources do you use to reviewand evaluate your fees?A

70%

2%

66%66%

58%

64%

Other

None

Industry contacts

Clients

Industry surveys

Consultants

Industry research and/or database providers

Competitors

0% 10% 20% 30% 40% 50% 60% 70%

55%

3%

38%

How often, if at all, do you reviewyour published fee schedules?

Other 2%

Every2-5 years6%

Quarterly7%

No published

fee schedule6%

When a new fund/

product is established3%

Annually

44%

As needed33%

A Multiple responses were allowed.


20/56


Two-thirds of investment management respondent rms alter

their published fee schedules on an “as needed” basis. Ten

percent change fees only when a new fund or product is

established. Only 3% report making changes annually, down

from 10% in 2011. Six percent never change published fee

schedules, down from 15% in 2011.

Looking at changes over time, the majority of investment

management rms report making no changes to published

fees in each year examined. When rms do make changes,

altering breakpoints and lowering fees are the most common

actions. In 2013, 14% of managers lowered fees and another

12% changed breakpoints, representing a modest uptick in

activity relative to the prior years.

For 2014, 13% of managers will lower fees, 7% will raise

account minimums, and 7% will change breakpoints. Very few

rms lowered fee minimums during the time period examined.

Investment Manager Published Fee Alterations

Other 5%

More than every

five years 4%

Between two andfive years 5%

Never 6%

When a new fund/productis established 10%

Annually 3%

As needed67%

How often, if at all, do you change your published fee schedules?

Changes to published fee schedules

No changes

Lower fees

Raise account minimums

Lower account minimumsRaise fee minimums

Lower fee minimums

Change breakpoints

Raise fees0%

20%

40%

60%

80%

100%

2014E20132012201120102009


21/56


Fund Sponsor Frequency of Fee Reviews

What sources do you use for fee comparisons when reviewing and evaluating fees?A

How often do you typically conduct fee reviews?

Every two years11%

Three to five

years 13%

Annually45%

Twice or more

per year 16%

Never 5%

Other 11%

Yes No

0% 20% 40% 60% 80% 100%

Not sure

62% 26% 12%

Fund sponsor fee reviews have increased in frequency

relative to 2011.

Close to half (45%) of fund sponsors review fees annually,

up from 34% in 2011. An additional 16% review fees more

than annually compared to 11% in 2011. Just 5% of respon-

dents never review fees.

When reviewing fees, fund sponsors most frequently turn to

their consultants for information (84%). Peers (47%) and other

industry sources (11%) also provide benchmarking data.

Looking forward, 62% of fund sponsors plan to review fees

in the next year, while just 26% will not.

A Multiple responses allowed.B Includes CEM survey, Greenwich Associates, Pensions & Investments, Plan Sponsor, industry contacts, Bloomberg and CIEBA.

Do you have a fee review planned in the next year?

84%

11%

5%

0% 20% 40% 60% 80% 100%

None

Various industry sourcesB

Peers

Consultant(s)

47%


22/56


Fee Negotiation Practices Among Fund Sponsors

Fund sponsor changes in fee negotiations over time

Fee negotiations decreased

Fee negotiations did not change

Fee negotiations increased

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 YTD

On average, fund sponsor respondents negotiated fees with

54% of their new managers and 24% of their existing man -

agers, up from 42% and 14% in 2011, respectively. The 2014

averages reect diverse responses: 46% of fund sponsors

successfully negotiated fees with 100% of their new manag-

ers in the past one to three years while 26% did not negotiate

with any managers.

Looking at fee negotiations over the past four years, we note

a decrease in negotiations for 25% of respondents in 2013

and 13% in 2014 (year to date).

Asset allocation can inuence fund sponsors’ potential to

negotiate fees, as some asset classes are more open tonegotiations than others. On the following page we list asset

classes according to frequency of fee negotiations.


23/56


Fee Negotiation Practices Among Fund Sponsors (continued)

Indicate the frequency of fee negotiations for the asset classes your fund owns.In a reversal from 2011, fund sponsors report fee negotia-

tions frequently occur in alternative asset classes such as

commodities, infrastructure, and hedge funds. Investors

were split on hedge funds; 42% indicated they always or fre-

quently negotiate fees for these strategies while 50% rarely

or never do. Nearly one-third of respondents indicated they

always negotiate fees for non-U.S. xed income.

Private equity remained low on the list, as less than one-third

of respondents report always or frequently negotiating fees

for this asset class. Negotiations in U.S. large cap equity

dropped to the bottom of the list from second place in 2011.

Commodity Funds


Hedge Funds

Always Frequently Rarely

Number of

Respondents

33% 25%

27% 27%

17%

25% 8%

31% 31%

18% 32%

16%

17% 28%

20%

31%

15%

31%

12

23

12

22

44

47

30

20% 25%

16

17%

13%

29

30% 13%

11

Core Fixed Income


Small Cap Equity

Large Cap Equity

Mid Cap Equity


Infrastructure

Non-U.S. Equity


Private Equity

Global Equity

Hedge Fund-of-Funds

Real Estate

0% 100%20% 40% 60% 80%

18%

27% 32%

23%

21% 26%

20%

14%

18% 29%

39

38

30

34

49

28

Percentage of Respondents

17%

18%

14%

17%

6%

14%

10%

15%

10%

14%

8%

17%

23%

14%

13%

11%

10%

9%

9%

8%

13%

7%

17%

14%

20%

29%

20%

20%

17%

5%23%

26%

26%

37%

29%

22%

42%

19%

Sometimes Never

15%

20%

29%

23%

16%

24%

20%30%


24/56


Fee Negotiation Practices Among Investment Managers

Fee NegotiationsConsistent with previous surveys, nearly all investment

managers (91%) report they are willing to negotiate fees.

While 92% of investment managers will negotiate fees with

new clients, they do so with less than half (39%) of new

clients, on average. Fewer managers negotiate fees with

existing clients: 73% are open to fee negotiations with exist-

ing clients, and typically do so with just 9% of their clients.

Nearly 60% of respondent rms will negotiate across all

mandates offered, but the remaining rms will not for certain

asset classes or smaller accounts, particularly wi thin pooled

vehicles and capacity-constrained products.

Investment managers report that public funds most fre-quently negotiate fees, followed by corporate. As in 2011

and 2009, managers typically negotiate the least with

endowments/foundations. What types of your rm’s clients typically negotiate fees?

Yes No

0% 20% 40% 60% 80% 100%

Do you negotiate fees for all mandates?

Do you negotiate fees with existing clients?

Do you negotiate fees with new clients? 92% (with 39% of clients, on average) 8%

73% (with 9% of clients, on average) 27%

59% 41%

Weighted Average Score

2.3

2.0

2.0

1.9

0.0 1.0 2.0 3.0

Endowment/Foundation

Other

Multi-Employer

Corporate

Public

2.1


25/56


Primary Discounts Applied to Multi-Mandate Portfolios

0% 10% 20% 30% 40% 50%

Most expensive product charged first A

Highest funded product charged first A

Other

First product funded charged first A

Varies by client

No discounts given

Discount applied to sum of all fees

ANext product charged at incremental funding level

Percentage of Investment Manager Responses

45%

3%

20%

15%

11%

4%

8%

35%

6%

36%

NA

9%

3%

11%

2014 2011

Fee Negotiation Practices: Multi-Mandate Portfolios

In 2014, just 20% of investment managers report they do

not give fee discounts to clients for whom they manage mul-

tiple portfolios, down from 36% in Callan’s 2011 survey.

The most common method of addressing multi-mandate

portfolios is to provide a “relationship discount” by calcu-

lating fees for individual products separately at individual

product allocation levels and applying a discount to the sum

of all fees (45%). This represents an increase in frequency

relative to 2011 (35%), and remains the most popular

method of offering discounts to clients with multiple man-

dates (compared to 37% in 2009 and 28% in 2006).

Eleven percent of respondents apply the fee schedule for therst product funded with the next product charged at the incre -

mental funding level. Just 3% of rms apply fees to the most

expensive product rst, with the next product funded charged

at the incremental funding level. Eight percent of rms use

other approaches to negotiate multi-mandate relationships.


26/56


How do you classify “nations,” or groups, of like clients?A

Fee Negotiation Practices: Most Favored Nation

67%

61%

32%

38%

By domicile

By tax status (exempt or not)

By fund size

By fund type

By vehicle type

By product type

By strategy type

By investment size

0% 10% 20% 30% 40% 50% 60% 70%

31%

10%

12%

By length of relationship

Other

16%

14%

12%

Most favored nation (MFN) clauses generally dictate that an

investment manager will give a fund sponsor investor the

lowest fee that is available to other comparable investors.

More than three-quarters of investment managers (76%) will

provide MFN clauses to a portion of their clients, though sev-

eral rms indicated it is not something they actively offer. On

average, 16% of clients have an MFN clause in their contract

(down from 23% in 2011).

To classify groups of comparable investors for MFN clauses,

investment managers most often group investors by the

size of the fund or investment (67%) followed by the strat-

egy type (61%). Length of client relationship dictates MFNclauses for just 12% of respondents.

Do you have Most Favored Nation (MFN) clauses in place with clients?

0% 20% 40% 60% 80% 100%

24%76%

Yes No

A Multiple responses allowed.


27/56


Methodology Used to Report Findings

Published Versus Actual Fees

The following pages report on published versus actual fee

data, when available, on 15 different asset classes. Published

(or standard) fee information for most asset classes is sourced

from Callan’s investment manager database where laddered

or sliding scales are applied to account sizes.

Actual fees represent payments fund sponsors made in 2013

to their investment managers, reported as a percent of total

account size in basis points. Actual fees differ from published

fees to varying degrees, depending on the asset class.

Note that differences between actual and published fees for

all asset classes may reect:

• How much the published fee schedule is negotiated,• Differences in the actual and published fee database

participants,

• Hiring practices of individual fund sponsors (e.g., choosing

lower fee products),

• Bundling of services when fund sponsor utilizes multiple

manager products or services, and/or

• Institutional demand and product availability.

In Appendix 1 we include published fee distributions for 18

additional asset classes and sub-asset classes, includ-

ing large cap core, value, and growth equities, global xed

income, emerging market debt, and others. Appendix 2

reveals published and actual fee distributions from Callan’s

2011 Investment Management Fee Survey, which we use as

a basis for commentary on fee changes over time.

Active Equities

• U.S. Large Cap Equity

• U.S. Mid Cap Equity

• U.S. Small Cap Equity

• Global Equity

• Non-U.S. Equity

• Non-U.S. Small Cap Equity

• Emerging Market Equity

Active Fixed Income

• Core Fixed Income

• Core Plus Fixed Income

• High Yield Fixed Income

Passive Equity and Fixed Income

• U.S. Large Cap Equity

• Non-U.S. Equity

• U.S. Broad Market Fixed Income

Alternatives

• Real Estate

• Private Equity

• Hedge Fund-of-Funds

Published Fees:

Sourced from Callan’s investment manager database of like-styled products and other industry sources.

Actual Fees:

Sourced from fund sponsor fee survey responses and Callan’s Fund Sponsor Database.


28/56


Active U.S. Large Cap Equity Fees (basis points) by Account SizeB

Published Versus Actual Fees: Active U.S. Large Cap Equity

0 bps

20 bps

40 bps

60 bps

80 bps

$200mm

$75 to$100mm

2013 Median Published Fees 2013 Median Actual Fees

In these exhibits we address active U.S. large cap equity

separate accounts. Individual published fee schedules for

U.S. large cap core, growth, and value strategies are avail -

able in Appendix 1.

The active large cap fee pattern generally reects a mature

product segment: (1) there is an overall fee decline the

larger the account size; and (2) actual fees are generally

lower than published fee ranges.

Separate account fees range by 25 to 30 bps across

account sizes for published fees, but grow as high as 68 bps

for actual fees. For accounts less than $10 million, median

actual fees represent around 70% of published fees.

Actual commingled account fees appear comparable to

separate account fees. Looking at published fees, large

cap growth equity strategies carry a slight premium (from

1 to 7 basis points) in published fees over core and value

peers. This premium declines as account size grows. See

Appendix 1 for details.

2011 versus 2013 TrendsA

Published fees were relatively at across account sizes rel-ative to 2011. Changes to median actual fees were mixed

by account size; surprisingly, smaller accounts saw mod-

est fee declines (around 5 bps) while larger accounts saw

increases of around 15 bps.

A Trend commentary reflects comparisons of median fees for separate accounts. See Appendix 2 for 2011 data points.B Includes active large cap core, growth, and value strategies. Passive and enhanced index products are not included. Published fee distributions for large cap

core, growth, and value are in Appendix 1.

* Insufficient fee data or small sample size.

10th percentile 85 62 79 72 75 65 73 95 70 63 65 66 * 47

25th percentile 75 58 71 65 66 57 63 66 60 51 54 61 35

Median 70 50 65 59 59 51 55 47 53 50 49 47 25

75th percentile 60 46 60 51 54 38 50 37 49 41 43 31 2090th percentile 55 44 54 35 50 23 47 30 45 35 36 15 15

Average 69 53 65 57 60 49 57 57 55 51 50 44 30

# of observations 340 3* 340 18 340 22 340 7* 340 15 340 19 83


29/56


Active U.S. Mid Cap Equity Fees (basis points) by Account SizeB

Published Versus Actual Fees: Active U.S. Mid Cap Equity

40 bps

50 bps

60 bps

70 bps

80 bps

90 bps

$200mm

$75 to$100mm


10th percentile 98 80 87 * 85 68 82 82 80 79 76 66 * 64

25th percentile 85 73 85 78 64 75 70 75 69 70 62 53

Median 80 50 76 73 54 69 50 67 50 63 55 47

75th percentile 75 50 71 65 39 60 44 59 39 55 54 4290th percentile 60 50 60 55 31 51 40 49 23 45 52 24

Average 80 60 76 72 51 68 59 66 52 62 57 49

# of observations 86 6* 86 86 5* 86 3* 86 11 86 10 17

Active mid cap equity st rategies charge a notable premium

over large cap equity mandates. Median mid cap published

fees are around 10 to 14 basis points (or 14% to 30%)

higher than large cap equity counterparts.

Actual mid cap fees are generally quite a bit lower than

published, ranging from 8 to 30 bps less across account

sizes. Median actual fees represent around 60% to 90% of

published fees.


Median published fees increased marginally across account

sizes over the past two years, ticking up by 1 to 4 bps. Actual

fees declined modestly over this time period (by 1 to 8 bps) for

the account sizes where we had ample data for comparison.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points.B Includes fee data for separate accounts.



30/56


Active U.S. Small Cap Equity Fees (basis points) by Account SizeB

Published Versus Actual Fees: Active U.S. Small Cap Equity

50 bps

60 bps

70 bps

80 bps

90 bps

100 bps

$200mm

$75 to$100mm


10th percentile 100 114 100 100 100 99 100 78 100 80 100 85 * 74

25th percentile 100 100 100 97 100 90 94 75 93 77 90 73 64

Median 100 91 94 85 88 84 83 71 81 71 77 64 50


Average 94 89 92 81 88 79 85 65 84 72 80 65 51

# of observations 283 12 283 23 283 18 283 10 283 14 283 29 25

Small cap is more expensive than other U.S. equities, run-

ning about 15 to 20 bps more than mid cap and around 30

bps more than large cap across account sizes for published

fees. For actual fees, the disparity grows as large as 40 bps

for smaller account sizes.

In 2013, published fees were at relative to 2011. Consistent

with ndings in Callan’s 2006, 2009, and 2011 fee surveys,

the upper bands for published and actual fees remain 100

basis points for nearly all account sizes.

The range of published fees starts at 24 basis points and

grows with account size, suggesting greater negotiating

ability at larger allocation levels. The spread between pub-

lished and actual median fees grows with account size, from

9 bps for the smallest accounts to 13 bps for the largest.


Median published fees were at relative to 2011 across

account sizes. Published fees have not changed much rela-

tive to Callan’s 2009 survey, as well. Actual fees notched

increases across account sizes in the range of 6 to 14 bps.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points.B Includes fee data for separate accounts for active small cap core, growth, and value strategies. Published fee distributions for small core, growth, and value

are in Appendix 1.



31/56


Active Global Equity Fees (basis points) by Account SizeB

Published Versus Actual Fees: Active Global Equity

30 bps

40 bps

50 bps

60 bps

70 bps

80 bps

$200mm

$75 to$100mm


10th percentile 97 * 94 67 90 * 88 77 87 * 85 54 * 51

25th percentile 85 83 61 80 77 71 75 73 51 47

Median 75 75 53 70 67 60 65 59 48 42

75th percentile 70 70 46 63 60 45 59 51 44 3790th percentile 60 60 42 60 56 36 52 47 42 24

Average 76 75 54 73 70 57 69 63 48 41

# of observations 77 77 3* 77 77 7* 77 77 2* 37

Global equity published fees fall between 47 to 97 bps

across account sizes. Actual fee data are quite limited for

all but the largest account sizes (greater than $200 million),

suggesting more limited use of global mandates outside of

the very biggest funds. The median actual fee for accounts

larger than $200 million is 42 bps, just slightly higher than

actual fees for non-U.S. equity (detailed on the following

page).

Published active global equity commingled fund fees are

similar to separate account fees. Actual global equity fees

are in line with non-U.S. equity. Similar to non-U.S. active

equity fees, median published global equity fees carry a pre-

mium over their U.S. active large cap counterparts ranging

from 5 to 12 bps across account sizes.


Published fees for global equity mandates were at for

accounts less than $200 million relative to 2011 and 2009.

Median published fees for the largest accounts notched up

2 bps relative to 2011, while actual fees at this account size

level ticked up by 9 basis points.




32/56


Active Non-U.S. Equity Fees (basis points) by Account SizeB

30 bps

40 bps

50 bps

60 bps

70 bps

80 bps

$200mm

$75 to$100mm


10th percentile 90 80 85 94 84 64 80 75 80 72 79 67 * 53

25th percentile 80 67 80 82 75 57 73 69 70 68 63 60 45

Median 75 56 75 65 71 54 67 65 65 64 57 51 39


Average 74 55 73 63 70 55 66 61 64 58 59 52 38

# of observations 116 11 116 8* 116 6* 116 13 116 5* 116 16 71

Published fees for non-U.S. active equity start at around 75

bps and decline to around 50 bps as accounts size grows.

Actual fees reveal an inconsistent pattern for this asset

class, increasing in the $50 to $100 million account size

range before dropping precipitously for accounts larger than

$200 million. The spread between median published and

actual non-U.S. active equity fees ranges from about zero

to 15 bps.

Actual commingled funds generally charge a premium over

separate accounts of 2 to 20 basis points, due in part to

custody and other charges. Median actual non-U.S. equity

fees run an average of 8 bps higher than their U.S. large cap

active equity counterparts, while published non-U.S. equity

fees are 10 bps higher, on average.


Median published fees for non-U.S. equity mandates were

at across account sizes relative to 2011. Findings were

mixed with respect to actual fees. Actual fees were at or

declined for accounts less than $50 million, but grew 5 to 10

bps for larger accounts.



Published Versus Actual Fees: Active Non-U.S. Equity


33/56


Active Non-U.S. Small Cap Equity Fees (basis points) by Account SizeB

40 bps

60 bps

80 bps

100 bps

120 bps

$200mm

$75 to$100mm


10th percentile 100 * 100 * 100 * 100 95 100 * 99 93 * 74

25th percentile 100 100 97 93 91 92 89 82 66

Median 95 95 90 88 85 87 84 79 64

75th percentile 85 85 85 85 75 82 75 76 6090th percentile 76 76 76 76 69 76 74 67 58

Average 93 93 91 89 83 88 84 85 64

# of observations 23 23 23 23 3* 23 23 10 9

Non-U.S. small cap active equity fee distributions reect

separately managed, commingled, and institutional mutual

fund vehicles due to sample size limitations.

The range in published fees is comparable to U.S. active

small cap equity at around 25 basis points across account

sizes. Limited data was available for actual fees for accounts

smaller than $100 million, but on average fees ran around

87 bps for smaller accounts. For accounts between $100

and $200 million, the median actual fee paid was 79 bps,

falling to 64 bps for accounts larger than $200 million. Fee

differences may be attributable to vehicle type and whether

or not custody and administrative costs are included.

Median published non-U.S. small cap fees are comparable

to their U.S. small cap equity counterparts for the smallest

account sizes, and run about 2 to 7 bps higher for accounts

greater than $25 million. Non-U.S. small cap fees charge a

premium of about 20 to 25 bps over broad non-U.S. equity

accounts.


Median published fees for non-U.S. small cap equity man-

dates were at for accounts smaller than $50 million, andticked up 3 to 4 bps for larger accounts relative to 2011. The

one account size where there was sufcient data to compare

actual fees ($100 to $200 million) reveals a 5 bps increase.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points.B Includes fee data for separately managed, commingled, and institutional mutual fund vehicles.


Published Versus Actual Fees: Active Non-U.S. Small Cap Equity


34/56


Active Emerging Market Equity Fees (basis points) by Account SizeB

40 bps

60 bps

80 bps

100 bps

120 bps

$200mm

$75 to$100mm


10th percentile 113 * 110 113 110 96 103 148 100 89 100 92 * 78

25th percentile 100 100 101 100 96 100 87 100 88 91 84 74

Median 95 95 82 95 96 92 81 90 88 86 75 64

75th percentile 85 85 57 85 95 85 76 84 47 78 65 5190th percentile 78 78 51 76 94 75 64 71 22 65 52 32

Average 94 93 82 92 95 90 98 88 61 84 73 60

# of observations 56 56 8* 56 4* 56 6* 56 3* 56 7* 33

Emerging market fees reect separately managed, commin-

gled, and institutional mutual fund vehicles due to sample

size limitations. Actual fee data are limited in this area for

multiple account sizes, but we show data where Callan feels

it is representative of the marketplace.

Published fee distributions range from around 28 to 35

basis points across account sizes. Upper bands for emerg-

ing markets fees are the highest of the publicly traded asset

classes in this report and remain at or above 1%, consistent

with previous survey ndings. Median published emerging

market fees carry a 20 to 30 basis point premium over their

non-U.S. developed market counterparts.

Actual fee ranges are notably wider and higher than pub-

lished fees due to the inclusion of institutional mutual fund

vehicles in this group. Published fees include only sepa -

rate accounts and commingled funds (which may or may

not include custody and administrative costs). The highest

actual fee observations for the smaller account sizes are

mutual fund vehicles, which charge more than separate

accounts and commingled funds and reect all-inclusive

expense ratios.


Median published emerging markets fees marginally were

at or declined across asset sizes, falling 5 bps at the small-

est account size and 2 bps at the largest. Actual fee data

sample sizes were too limited in 2011 and 2013 to draw

trends over time.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points.B Includes fee data for separately managed, commingled, and institutional mutual fund vehicles.


Published Versus Actual Fees: Active Emerging Market Equity


35/56


Active Core Fixed Income Fees (basis points) by Account SizeB

0 bps

10 bps

20 bps

30 bps

40 bps

$200mm

$75 to$100mm


10th percentile 40 * 37 * 35 * 34 27 34 32 32 26 * 22

25th percentile 35 35 32 30 26 30 30 27 23 19

Median 33 30 30 28 20 27 26 24 19 15


Average 32 31 30 28 21 27 26 25 20 15

# of observations 76 76 76 76 4* 76 6* 76 11 38

This is the rst year that Callan has examined core xed

income fees separate from core plus. Published core strate-

gies tend to charge around 2 to 5 bps less than core plus

across account sizes. Published core fees fall within a nar -

row range across account sizes (11 to 15 bps). Fees decline

as account sizes increase in this mature market segment.

Actual fee data is limited for accounts smaller than $50 mi l-

lion because we collected information on separate accounts

only. Many smaller core xed income accounts are in com -

mingled funds, which are not covered on this page.

At 1 to 8 basis points, the gap between published and actual

xed income fees is smaller relative to other asset classes

examined in this survey. Median actual fees for accounts

larger than $50 million are about 70% to 90% of published

fees.


This is the rst year Callan has examined core fees sep-

arate from core plus, so direct comparisons are skewed

by the inclusion of core plus xed income in “broad xed

income” in 2011. Published core xed income fees were at

relative to 2009. Actual fees declined modestly for accountsless than $25 million and greater than $100 million by 1 to 4

basis points, but increased 2 to 5 basis points for accounts

between $25 and $100 million.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points. Core and core plus were combined in 2011.B Includes fee data for separate accounts.


Published Versus Actual Fees: Active Core Fixed Income


36/56


Active Core Plus Fixed Income Fees (basis points) by Account SizeB

0 bps

10 bps

20 bps

30 bps

40 bps

$200mm

$75 to$100mm


10th percentile 45 * 40 * 39 * 37 29 36 29 33 34 * 30

25th percentile 40 36 35 34 28 33 29 29 25 26

Median 35 35 30 30 25 30 28 26 24 19


Average 35 34 33 32 25 31 28 28 26 21

# of observations 36 36 36 36 3* 36 3* 36 7* 31

This is the rst year that Callan is looking at core plus xed

income fees separate from core. Published core plus fees

tend to fall around 2 to 5 bps higher than core fees across

account sizes. The range of published core plus fees is simi-

lar to core at 9 to 15 bps.

Actual core plus fees are similar to published fees; fund

sponsors collectively paid 2 to 5 bps less than published

schedules at the median for accounts greater than $50

million. Core plus is one of the asset classes where fewer

fund sponsors report frequent, successful fee negotiations

(page 21). Actual fee data is limited for accounts smaller

than $50 million.

Published core plus fees are 15 to 19 bps less than high

yield xed income (examined on the following page).


Core plus fees generally held steady over the past two

years, a nding that is hidden when comparing data from

Callan’s current and 2011 surveys. (This is the rst year

Callan examines core plus fees separately from core, so

direct comparisons are skewed by the inclusion of core xed

income in 2011). Published core plus fees increased 2 to 5bps relative to published broad xed income fees in 2011.

Similarly, actual fees ticked up by 3 and 4 bps for account

sizes greater than $50 million.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points. Core and core plus were combined in 2011.B Includes fee data for separate accounts.


Published Versus Actual Fees: Active Core Plus Fixed Income


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Active High Yield Fees (basis points) by Account SizeB

30 bps

40 bps

50 bps

60 bps

70 bps

$200mm

$75 to$100mm


10th percentile 65 56 64 * 62 57 58 * 56 50 53 48 * 56

25th percentile 55 52 55 52 51 50 50 50 50 46 47

Median 50 48 50 50 50 48 48 46 44 40 39

75th percentile 50 37 50 45 50 45 44 39 40 33 3190th p ercentile 45 21 45 42 50 40 38 32 34 31 22

Average 52 41 52 51 52 49 48 42 44 40 39

# of observations 51 4* 51 51 6* 51 51 4* 51 4* 25

High yield fees reect separately managed accounts and

commingled funds due to sample size limitations. Fees for

the two vehicle types are comparable.

High yield demands a notable premium over core and core

plus xed income fees. High yield fees are generally 15 to

20 bps higher than their broad market U.S. xed income

counterparts.

We collected fewer actual high yield fee data points than

published fee data; however actual fees are quite similar

to published fees in this asset class for accounts smaller

than $100 million. We note more negotiation at the larger

end of the spectrum (greater than $100 million), where the

median actual fee is closer to 10 bps less than the median

published fee.


The range of high yield fees compressed from around

25 in 2011 to 20 in 2013, suggesting maturation of the

asset class. Median published high yield fees were at for

accounts smaller than $75 million and decreased by 1 to 2

bps for larger accounts. Actual fees declined by 2 bps for the

smallest account size (actual fee data was available only foraccounts smaller than $25 million in 2011).

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points.B Includes fee data for separate accounts and commingled funds.


Published Versus Actual Fees: High Yield


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Passive U.S. Large Cap Equity Fees (basis points) by Account SizeB

1 bps

2 bps

3 bps

4 bps

5 bps

6 bps

$200mm

$75 to$100mm


10th percentile 10 3 10 * 9 7 9 5 8 * 7 5 * 3

25th percentile 8 3 8 7 6 7 5 7 6 4 2

Median 5 3 5 5 4 5 4 5 4 3 2

75th percentile 5 2 5 5 2 5 3 5 3 2 190th percentile 5 2 5 5 1 5 2 5 3 2 1

Average 6 2 6 6 4 6 4 6 5 3 2

# of observations 11 3* 11 11 7* 11 8* 11 11 9 49

Passive U.S. large cap equity actual fees reect separately

managed accounts and commingled funds due to sample

size limitations. Published fee data includes S&P 500 and

Russell 1000 fee schedules. Commingled funds and sepa-

rate account options reveal very little difference in pricing.

The range of passive U.S. large cap equity fees is, not

surprisingly, narrow at 5 bps or less across account sizes.

Published passive, large cap equity fees average 8% of

large cap active counterparts. Median actual fees are 1 to 2

basis points less than published fees across account sizes.

Fee negotiations, benchmark, vehicle type, relationship

pricing, and whether or not the portfolio participates in secu-

rities lending are all factors that can account for differences.


Median published fees decreased by 1 to 3 basis points

for accounts less than $75 million and were at for larger

accounts. Median actual fees for the largest accounts

($200 million and greater) were consistent with previous

survey ndings.



Published Versus Actual Fees: Passive U.S. Large Cap Equity


39/56


Passive Non-U.S. Equity Fees (basis points) by Account SizeB

0 bps

5 bps

10 bps

15 bps

20 bps

25 bps

30 bps

$200mm

$75 to$100mm


10th percentile 15 6 15 9 15 14 14 7 14 10 13 9 * 9

25th percentile 13 5 13 9 13 13 12 7 12 10 12 9 6

Median 12 5 12 6 12 11 11 7 11 10 11 7 4


Average 12 5 12 6 12 10 11 7 11 10 10 7 6

# of observations 7 2* 7 4* 7 7* 7 1* 7 1* 7 4* 20

Similar to U.S. large cap equity, the range of non-U.S. pas-

sive equity published fees is fairly narrow across account

sizes, approximately 7 basis points. Due to limi ted published

fee data, the sample is composed of both commingled and

separate account fee schedules for MSCI EAFE Index and

MSCI ACWI ex-U.S. Index funds.

Published non-U.S. passive equity fees are approximately

17% of their non-U.S. active equity counterparts. Actual fee

data are sparse for portfolios less than $200 million, sug -

gesting fund sponsor use of passive strategies may be

limited outside of the largest funds. At the largest account

level, median actual fees are 4 bps at the median and 6

bps on average. Differences between actual and published

fees may be attributable to a variety of factors, including

the vehicle type and whether or not the vehicle engages in

securities lending.


Median published non-U.S. passive equity fees were at or

marginally declined by 1 or 2 bps since the 2011 survey. The

median actual fee for accounts greater than $200 million

was at at 4 bps.



Published Versus Actual Fees: Passive Non-U.S. Equity


40/56


Passive U.S. Fixed Income Fees (basis points) by Account SizeB

0 bps

2 bps

4 bps

6 bps

8 bps

10 bps

$200mm

$75 to$100mm


10th percentile 9 * 9 6 9 9 9 * 9 * 7 * * 4

25th percentile 8 8 5 8 8 8 7 6 3

Median 7 7 4 7 8 6 6 5 3

75th percentile 6 6 3 5 7 5 5 5 290th percentile 5 5 3 4 7 4 4 4 2

Average 7 7 4 7 8 6 6 5 3

# of observations 5 5 3* 5 4* 5 5 5 25

Few investment management rms offer passive xed

income strategies. Due to limited published fee data, the

U.S. broad market passive xed income sample includes

separate account and commingled fund vehicles, with and

without securities lending. The range in published fees is

a narrow 5 basis points across account sizes. Published

broad market passive xed income fees are about 20% of

actively managed core xed income mandates.

Actual fee data are limited for portfolios of less than $200

million. At the largest account levels, median actual fees are

around half of published fees.

Fee differences may be attributable to vehicle type

and whether or not the vehicle uses securities lending.

Additionally, some custodians also manage passive xed

income strategies and may offer fee discounts to their cus-

tody clients that invest in these strategies.


Published fees for broad market xed income mandates

have generally been at relative to data collected in 2006,

2009, and 2011 survey ndings.



Published Versus Actual Fees: Passive U.S. Fixed Income


41/56


Real Estate Fees (basis points) by Account SizeB

70 bps

80 bps

90 bps

100 bps

110 bps

120 bps

130 bps

140 bps


42/56


Global REITs Fees (basis points) by Account SizeB

30 bps

40 bps

50 bps

60 bps

70 bps

80 bps


43/56


Private Equity Fees (basis points) All Account Sizes*

0 bps

50 bps

100 bps

150 bps

200 bps

250 bps

300 bps

350 bps

Separate

Accounts

Limited

Partnerships

Fund-of-

Funds

10th percentile 108 103 301


Median 61 78 158



Average 70 73 177

# of observations 9 28 22

Have an additionalperformance-based fee

13% 25% 65%

Fee Base: Committed

Capital78% 77% 75%

We display actual private equity fees for separate accounts,

limited partnerships, and fund-of-funds (FOFs) for a broad

range of account sizes (net asset values) and capital com -

mitments. These data provide insight into the average fee

over the life of an investment. There are no sources of

published private equity fee data for comparison. Separate

accounts generally provide signicant economies of scale

resulting in lower fees (median of 61 bps). FOF fees are

around 30% higher at a median of 78 bps. The median lim-

ited partnership is more than double that gure (158 bps).*

Fee ranges are broad, as the amount of capital committed

and the investment value vary over time and by investor. For

example, an FOF that initially charges 100 basis points can

drop its fee to as low as 20 basis points at the end of the invest-

ment’s life when it is almost liquidated. In separate accounts,

fees typically ramp down over time, thus newer investments

(with more recent fund inception dates) have higher fees.

Separate accounts and FOFs typically charge an annual

management fee only, while additional performance-based

fees are more common with limited partnerships.* Fees are

most frequently based on the amount of committed (rather

than invested) capital for all vehicle types. Sl iding fee scalesare common for both vehicle types, as are performance-

based fee arrangements.


Separate accounts and FOFs have seen downward move-

ment in fees, particularly for newer vehicles, over the last

few years. While they have not seen direct declines in man -

agement fees, limited partnerships have achieved better

economics, resulting in fee declines and better net returns.

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points.

*Separate account and FOF fees are for the manager-of-managers only, and do not include fees paid to underlying limited partnerships.

Actual Fees: Private Equity

A l F H d F d f F d


44/56


Hedge Fund-of-Funds Fees (basis points)

0 bps

30 bps

60 bps

90 bps

120 bps

150 bps

With Performance

Incentive Fee

No Performance

Incentive Fee

We compare actual fees across hedge fund-of-funds

(HFOF) account sizes for structures with and without perfor -

mance incentive fees. A at management fee structure (no

performance incentive fee) was more frequently employed

by survey respondents.

Performance incentive fees hit 5% at the median, alongside

a 90 bps base fee. All fund sponsors that reported data for

HFOFs with performance incentive fees have a high-water

mark for that fee and a lock-up period.

HFOF fees that do not include a

2014 investment management fee survey: u.s. institutional fund sponsors and investment managers

Documents