Cost check

Background

In times of persistently low interest rates, the costs of mandates, depositaries and investment management are an essential factor in portfolio performance. A reduction in the cost burden incurred in mandates definitely increases the return on the investment. FERI’s approach involves three steps.

Objectives

• Increased cost transparency
• Detection of potential savings
• Adaptation of the scope of services

Analysis

• Review of fee structures taking into account all costs, e.g. manager and administration fees, performance fees, etc. as part of the comprehensive FERI market overview 
• Review of the appropriateness and necessity of the existing scope of services

Outcome

• Identification of specific areas with potential for savings or a target cost ratio to be aimed for
• On request, cost negotiations can be conducted or additional services negotiated with asset managers or service providers

Example for cost check

Mandates

• Management fee
• Performance fee (benchmark, water mark)
• Costs in own/external target funds
• Review of the advantages of currency hedging and collateral management in the mandate or centralised in the master fund
• Other mandate-specific costs

Master investment management company

• Fixed fee on the volume
• Segment fee
• Costs and scope of reporting
• Costs for special evaluations (e.g. stress tests)

Retail mutual funds

• Selection of a suitable, cost-effective tranche
• Negotiation of retrocessions
• Review of external costs or double fee structures at inclusion in a master fund vs. holding in direct portfolio

Depositary

• Fixed fee on the volume
• Segment fee
• Depositary fees
• Conditions in derivative instrument trading
• High rate of deposit interest (penalty fees)