Australia's robust A$3.7 trillion ($2.5 trillion) pensions industry is adept at negotiating lower asset management fees compared to global peers, saving nearly 12 basis points, or about a fifth, Bloomberg reported on CEM Benchmarking statement on Thursday. This aggressive stance has saved the funds a combined A$1.1 billion, amidst growing pressure to reduce charges in Australia's competitive market. Mike Heale, CEM's head of business development, notes that Australian pensions are becoming increasingly tough negotiators, leading some managers to shy away from Australian business due to fee compression. The survey, covering 11 unnamed pensions with a median total assets under management of A$72 billion, reveals that Australian funds pay significantly lower investment costs, averaging 43.6 basis points compared to the global average of 55.5 basis points, even after adjusting for scale and asset mix. The largest fee discrepancies are in real assets, with Australian funds paying substantially less for real estate and infrastructure investments. They also pay less across fixed-income, private equity, private credit, and hedge fund assets. As pensions bring investment functions in-house or opt for flat-fee structures, asset managers feel the squeeze. First Sentier Investors recently announced closures totaling A$14 billion due to low-margin business. Regulatory scrutiny has intensified as record inflows surpass A$2 billion per week, prompting an annual performance test to weed out underperforming funds and lower fees. However, Heale warns against excessive cost-cutting, as it could drive active managers away from the Australian market. He emphasises the need to balance cost reduction with maintaining quality investment strategies.
