Pension funds that drive a hard bargain with asset managers can make savings of up to 50% in management fees, claims consultant bfinance.

The firm has collected data on 50 mandates that it advises on, and found that pension funds can look forward to an average 26% discount by bargaining.

Looking to make these savings is a standard practice, but bfinance's head of market intelligence Emmanuel Léchère and head of research and development Olivier Cassin, told Pension Funds Insider "Depending on your negotiation power, we have seen price reductions of 20% to 50%".

The pair added that these bargains tend to be reached by "very good managers only, as negotiations would only occur once the manager and the strategy has been highly scored pre and post due diligence".

Like in any kind of large purchase, it pays to do your research on sellers and shop around, Léchère and Cassin say: "All institutional investors negotiate fees. But not all with the same outcome. So the question is really to have information on market prices which leads to a target price and then have a strategy to get there."

The research shows setting out the right procedure for price talks with asset managers is equally important. Léchère said: "A key prerequisite for managing down fund management costs is an open, transparent negotiation process when selecting external fund managers."

Bfinance's findings support their claims to offer added value as mandate advisers, with Léchère claiming "a consultant which scans the market widely and centralises pricing from the largest investors all over the world is in a good position to help."

Colin English, head of business development at Mn Services, told Pension Funds Insider that despite the obvious interest in making savings, "fees do not usually rank highly in considerations when choosing an asset manager. As long as the fees are competitive there are far more important aspects that trustees need to be considering when appointing a fund manager, like the risk-return profile, the manager's established processes and the stability of their management team."

English added that size matters. "The larger the funds you have, the larger the mandate an asset manager can expect to be allocated and that should work its way through to potentially significant discounts," he said.

First published: 16.06.2011

dbillingham@wilmington.co.uk