2014 Callan Investment Manager Fee Survey

2014 Investment Management Fee SurveyU.S. Institutional Fund Sponsors and Investment Managers

CALLAN INVESTMENTS INSTITUTE

Survey

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

Table of Contents

Executive Summary 2

Respondent Group Profile 4

Total Fund Level Fees 6

Fee 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


See page 6.

0 bps

20 bps

40 bps

60 bps

80 bps

100 bps

2009 20132011

10th Percentile 72.0 72.1 84.0 25th Percentile 48.7 52.6 53.5 Median 30.9 36.8 31.7 75th Percentile 22.3 27.7 26.5 90th Percentile 15.5 14.0 10.6 Average 37.1 44.6 46.4 # of Observations 55 58 64

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 (specific 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 findings, along with observations reflecting 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 findings 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


Endowments/Foundations

Public

Corporate

0 bps

20 bps

40 bps

60 bps

80 bps

201320112009

Large (>$5bn)

Medium ($500mm - $5bn)

Small (<$500mm)

0 bps

20 bps

40 bps

60 bps

201320112009

See page 7.

Mandates awarded in the past 18 months use performance-based fees

Fund’s managers are paidperformance-based fees

Fund sponsor respondents payperformance-based fees

0%

20%

40%

60%

80%

201420112009

See page 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 flat from 2009 to 2013.

• By fund type, endowments and foundations paid more than twice as much (median 73 bps) for investment management fees 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 million) and were flat 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 flat. 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 confident 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 firms’ profit 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, profit 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 figure closer to what was observed in 2009 (59%). The asset allocations of the respondent groups influence this figure, 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%

More than everyfive years 4%Between two and five years 5%

Never 6%

When a new fund/productis established 10%

Annually 3%

As needed67%

See page 18.


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 defined benefit plans (41%). Corporate defined benefit 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-profit trusts.

We divide respondent funds into five 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 marketplace as 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 Profile: 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 bn19%

$5.1 to $15 bn 18%

> $15 bn 19%

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


Survey results incorporate responses from 211 investment management organizations, supplemented by Callan’s Investment Manager Database of more than 1,500 firms. The majority of respondents identified themselves as “investment managers” (75%) and 17% indicated they are registered investment advisors. Firms classified as “other” include LLCs and other types of corporations.

Respondents are diversified by size based on total assets under management as of December 31, 2013. Thirty-five 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 Profile: Investment Managers

By Firm Type

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

Bank/Trust 3%

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 bn17%

> $100 bn 18%

$3.1 to $5 bn11%

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-Funds 0.8%

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)


0 bps

20 bps

40 bps

60 bps

80 bps

100 bps

2009 20132011

10th Percentile 72.0 72.1 84.0 25th Percentile 48.7 52.6 53.5 Median 30.9 36.8 31.7 75th Percentile 22.3 27.7 26.5 90th Percentile 15.5 14.0 10.6 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 values calculated upon which your fees are based?*

*Multiple responses allowed.

Other

Quarter end

Varies bymanager

Quarterbeginning

47%

32%

18%

6%

12%

Month end

Investment Management Fees Across Total Fund (bps)

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

2009 2011 20130.58 0.64 0.70


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 influences 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 (<$500mm)

0 bps

20 bps

40 bps

60 bps

201320112009

Median Total Investment Management Fees Paid (by fund type)

Median Total Investment Management Fees Paid (by fund size)


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 201310th percentile 43 65 57 80 84 72 43 36 49 174 205 15225th percentile 35 46 38 54 61 58 27 28 28 149 151 140

Median 24 29 22 41 45 37 18 20 20 134 96 9975th percentile 16 15 15 28 32 28 11 11 13 85 75 8090th 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 first 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, influence 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 asset class 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 flat 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)


Callan asked investment managers about their change in year-over-year fee revenue for a five-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 flow declined slightly (by 10%) after plateauing at 21%–30% from 2005 to 2007, and has reached a new norm at 11%–20%. Managers expect new cash flow 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 profit margins have shifted between 11%–20% and 21%–30% over the past 12 years. In recent years, pre-tax profit margins settled in at 11%–20%, and manager respondents project an uptick to the 21%–30% range for 2014.

Fee Revenue Generation and Profitability: Investment Managers

Calendar Year Revenue Firm Profitability (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 firm’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 flow (either existing or new accounts), as opposed to fee increases due to performance?

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


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 firms’ profit 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 firms 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 2011 and back to levels recorded in 2009.

The final portion of fee revenue flows back to the investment management firm as profit. Across asset classes, this rep-resents 34% of fee revenue, on average, which flows 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 CostsBonus to Manager/Team

Total Firm RevenueProfit 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.


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 figure closer to what was observed in 2009 (59%). The asset allocations of the respondent groups influ-ence this figure, 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 firms 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 past 18 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 pay performance-based fees

Investment manager respondentsthat offer performance-based fee arrangements


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) managers

and 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

Custodian and Manager15%

Other 6%

Manager44%

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 managernegotiate a fee schedule for the start-up period.

Fees are handled according to the published feeschedule 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



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

7A

15

18

25

18

12% 12%

5A

6% 11% 18

41% 18%

10

Core 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 fixed income and various equity strategies.

Performance-Based Fees: Top Asset Classes – Fund Sponsors

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

A Note the small number of respondents.


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 fixed income strategies (1% and 3%, respectively).

These responses reflect the survey sample, including invest-ment managers dedicated to one asset class or strategy in addition to firms 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 asset class your firm manages.

Number ofRespondents

75%

51%

5%

37%

28%

6%

0%

6%

3%

25

9

6A

24

37

26

23

42

20

10% 5A

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.


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 flat 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-specific, and are typically a predetermined performance return—a benchmark or a benchmark plus a specific return target (e.g., S&P 500 + 3%). Performance measurement periods range from one to five years, but are most often three years.

Performance-based fees are usually computed based on one-, three- or five-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 defined on the following page.

Core Real EstateMulti-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%


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 firm.

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 firm.

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 firm.

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

Standard Fee: the fee earned by an investment management firm based upon its standard “flat” 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


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 firms 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 review and 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 review your published fee schedules?

Other 2%

Every2-5 years6%Quarterly7%

No published fee schedule6%

When a new fund/product is established3%

Annually44%

As needed33%

A Multiple responses were allowed.


Two-thirds of investment management respondent firms 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 firms report making no changes to published fees in each year examined. When firms 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 firms lowered fee minimums during the time period examined.

Investment Manager Published Fee Alterations

Other 5%

More than everyfive years 4%Between two and five 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 minimums

Raise fee minimums

Lower fee minimums

Change breakpoints

Raise fees0%

20%

40%

60%

80%

100%

2014E20132012201120102009


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 years 11%

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%


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 reflect 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 influence fund sponsors’ potential to negotiate fees, as some asset classes are more open to negotiations than others. On the following page we list asset classes according to frequency of fee negotiations.


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. fixed 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 RarelyNumber 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%


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 firms will negotiate across all mandates offered, but the remaining firms will not for certain asset classes or smaller accounts, particularly within 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 firm’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


Primary Discounts Applied to Multi-Mandate Portfolios

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

Most expensive product charged firstA

Highest funded product charged firstA

Other

First product funded charged firstA

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 the first product funded with the next product charged at the incre-mental funding level. Just 3% of firms apply fees to the most expensive product first, with the next product funded charged at the incremental funding level. Eight percent of firms use other approaches to negotiate multi-mandate relationships.


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 firms 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 MFN clauses 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.


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 reflect:

• 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 fixed 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.


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

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$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 reflects 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 flat 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 * 4725th 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 2575th 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


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

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 98 80 87 * 85 68 82 82 80 79 76 66 * 6425th percentile 85 73 85 78 64 75 70 75 69 70 62 53Median 80 50 76 73 54 69 50 67 50 63 55 4775th 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 strategies 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.* Insufficient fee data or small sample size.


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

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 100 114 100 100 100 99 100 78 100 80 100 85 * 7425th percentile 100 100 100 97 100 90 94 75 93 77 90 73 64Median 100 91 94 85 88 84 83 71 81 71 77 64 5075th percentile 90 72 85 69 80 68 77 53 75 65 69 54 4190th percentile 76 64 75 50 73 54 69 42 67 61 60 49 27

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 flat relative to 2011. Consistent with findings 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 flat 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. * Insufficient fee data or small sample size.


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

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 97 * 94 67 90 * 88 77 87 * 85 54 * 5125th percentile 85 83 61 80 77 71 75 73 51 47Median 75 75 53 70 67 60 65 59 48 4275th 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 flat 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.



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

30 bps

40 bps

50 bps

60 bps

70 bps

80 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm



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 flat across account sizes relative to 2011. Findings were mixed with respect to actual fees. Actual fees were flat 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


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

40 bps

60 bps

80 bps

100 bps

120 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 100 * 100 * 100 * 100 95 100 * 99 93 * 7425th percentile 100 100 97 93 91 92 89 82 66Median 95 95 90 88 85 87 84 79 6475th 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 reflect 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 flat for accounts smaller than $50 million, and ticked up 3 to 4 bps for larger accounts relative to 2011. The one account size where there was sufficient 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. * Insufficient fee data or small sample size.

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


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

40 bps

60 bps

80 bps

100 bps

120 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 113 * 110 113 110 96 103 148 100 89 100 92 * 7825th percentile 100 100 101 100 96 100 87 100 88 91 84 74Median 95 95 82 95 96 92 81 90 88 86 75 6475th 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 reflect 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 findings. 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 reflect all-inclusive expense ratios.


Median published emerging markets fees marginally were flat 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. * Insufficient fee data or small sample size.

Published Versus Actual Fees: Active Emerging Market Equity


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

0 bps

10 bps

20 bps

30 bps

40 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 40 * 37 * 35 * 34 27 34 32 32 26 * 2225th percentile 35 35 32 30 26 30 30 27 23 19Median 33 30 30 28 20 27 26 24 19 1575th percentile 30 30 27 25 15 24 25 21 16 1090th percentile 25 25 24 23 14 23 19 19 14 9

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 first year that Callan has examined core fixed 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 mil-lion because we collected information on separate accounts only. Many smaller core fixed 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 fixed 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 first year Callan has examined core fees sep-arate from core plus, so direct comparisons are skewed by the inclusion of core plus fixed income in “broad fixed income” in 2011. Published core fixed income fees were flat relative to 2009. Actual fees declined modestly for accounts less 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. * Insufficient fee data or small sample size.

Published Versus Actual Fees: Active Core Fixed Income


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

0 bps

10 bps

20 bps

30 bps

40 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 45 * 40 * 39 * 37 29 36 29 33 34 * 3025th percentile 40 36 35 34 28 33 29 29 25 26Median 35 35 30 30 25 30 28 26 24 1975th percentile 30 30 30 28 23 27 27 25 22 1590th percentile 30 30 30 28 21 26 26 24 20 13

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 first year that Callan is looking at core plus fixed 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 fixed income (examined on the following page).


Core plus fees generally held steady over the past two years, a finding that is hidden when comparing data from Callan’s current and 2011 surveys. (This is the first year Callan examines core plus fees separately from core, so direct comparisons are skewed by the inclusion of core fixed income in 2011). Published core plus fees increased 2 to 5 bps relative to published broad fixed 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. * Insufficient fee data or small sample size.

Published Versus Actual Fees: Active Core Plus Fixed Income


Active High Yield Fees (basis points) by Account SizeB

30 bps

40 bps

50 bps

60 bps

70 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 65 56 64 * 62 57 58 * 56 50 53 48 * 5625th percentile 55 52 55 52 51 50 50 50 50 46 47Median 50 48 50 50 50 48 48 46 44 40 3975th 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 reflect 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 fixed income fees. High yield fees are generally 15 to 20 bps higher than their broad market U.S. fixed 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 flat 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 for accounts 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. * Insufficient fee data or small sample size.

Published Versus Actual Fees: High Yield


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

1 bps

2 bps

3 bps

4 bps

5 bps

6 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 10 3 10 * 9 7 9 5 8 * 7 5 * 325th percentile 8 3 8 7 6 7 5 7 6 4 2Median 5 3 5 5 4 5 4 5 4 3 275th 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 reflect 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 flat for larger accounts. Median actual fees for the largest accounts ($200 million and greater) were consistent with previous survey findings.


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


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

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm



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 limited 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 flat or marginally declined by 1 or 2 bps since the 2011 survey. The median actual fee for accounts greater than $200 million was flat at 4 bps.


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


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

0 bps

2 bps

4 bps

6 bps

8 bps

10 bps

<$10mm$10 to $25mm

$25 to $50mm

$50 to $75mm

$100 to $200mm >$200mm

$75 to $100mm


10th percentile 9 * 9 6 9 9 9 * 9 * 7 * * 425th percentile 8 8 5 8 8 8 7 6 3Median 7 7 4 7 8 6 6 5 375th 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 firms offer passive fixed income strategies. Due to limited published fee data, the U.S. broad market passive fixed 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 fixed income fees are about 20% of actively managed core fixed 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 fixed income strategies and may offer fee discounts to their cus-tody clients that invest in these strategies.


Published fees for broad market fixed income mandates have generally been flat relative to data collected in 2006, 2009, and 2011 survey findings.


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


Real Estate Fees (basis points) by Account SizeB

70 bps

80 bps

90 bps

100 bps

110 bps

120 bps

130 bps

140 bps

<$25mm$25 to $50mm

$50 to $75mm

$75 to $100mm

Core Open-Ended Value-Added

$100 to $200mm

2013 Median Published Fees: Core Open-Ended

2013 Median Published Fees: Value Added

All Account SizesActual Fees

2013 Median ActualFees: Core Open-Ended

2013 Median ActualFees: Value Added

10th percentile 108 150 104 150 101 150 100 150 96 150 101 15825th percentile 103 150 97 150 95 150 95 125 93 125 97 150Median 99 125 96 125 95 125 89 116 86 111 76 13575th percentile 95 100 92 100 85 100 85 100 80 100 66 10690th percentile 83 63 81 63 78 63 77 63 59 63 42 89

Average 97 120 92 118 90 115 87 112 83 110 78 129# of observations 29 36 29 36 29 36 29 36 29 36 33 14

For real estate, we display published fees for core open-ended commingled funds and value-added com-mingled funds and separate accounts; actual fees are displayed for core open-ended separate accounts and commingled funds across all account sizes. Stated fees incorporate base and incentive fees, where appli-cable. REITs are covered on the following page. The range in fees for core open-ended commingled funds (the difference between the 10th and 90th percentiles) is narrower for the smaller accounts at around 23 basis points, but grows to 37 basis points for accounts in the $100 to $200 million size range. Value-added fees span a wider range at 88 bps across account sizes.

Looking at actual fees, we note that the median for core open-ended funds is 76 bps across account sizes, or 82% of average published fees. Interestingly, the median value-added commingled fund fee runs higher than the median published fee across account sizes at 135 bps. This is in part due to the small account sizes included in the sample: 71% of the accounts included in the value-added actual fee distribution are smaller than $25 million.


Relative to 2011, median published core open-ended com-mingled fund fees increased by 4 to 9 bps for accounts under $200 million and by 1 bp for accounts larger than $200 million. Core open-ended actual fees (for all account sizes) ticked up 8 bps (12%). The increases could be a result of concessions for newly created funds running off. Value-added fees grew more substantially, by around 15 bps for accounts under $100 million and 11 bps for larger accounts.

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: Real Estate Core Open-Ended and Value-Added


Global REITs Fees (basis points) by Account SizeB

30 bps

40 bps

50 bps

60 bps

70 bps

80 bps

<$25mm$25 to $50mm

$50 to $75mm

$75 to $100mm

Commingled Funds

Separate Accounts

$100 to $200mm

2013 Median Published Fees: Commingled Funds

2013 Median Published Fees: Separate Accounts

All Account SizesActual Fees

2013 Median ActualFees: Commingled Funds

2013 Median ActualFees: Separate Accounts

10th percentile 87 84 84 80 78 80 75 79 75 76 94 7125th percentile 85 80 80 80 75 77 75 75 74 69 71 53Median 75 77 75 75 73 73 71 71 69 63 67 4775th percentile 70 70 70 65 70 64 69 64 66 58 62 4390th percentile 70 65 66 63 61 60 60 58 60 52 55 36

Average 78 75 75 73 72 70 71 68 69 63 73 49# of observations 13 24 12 24 12 24 12 24 11 21 8* 14

On this page we compare published REIT fee data for separate accounts and commingled funds for five different account size ranges, and actual fee data for both vehicles for all account sizes.

The range in fees for separate accounts (20 basis points, on average) is slightly wider than for commingled funds (16 basis points). Commingled funds generally charge a pre-mium of several basis points over separate accounts that is more apparent in the average figures than the medians (shown in the line chart); this premium grows as account size increases.

Separate account fees decline for larger account sizes while commingled funds generally use either a flat fee or offer breakpoints at higher levels relative to separate accounts. Actual commingled REIT fees fall 6 basis points lower than the average of published fees. For separate accounts this disparity is larger, with the median actual fee falling 25 basis points below the average of median published fees.


Relative to 2011, median published REIT fees were flat for separate accounts sizes except the $100 to $200 million range, which saw an increase of 7 basis points. Commingled fund published fees were also flat, with a slight uptick of 2 basis points for accounts between $50 and $200 million. Actual commingled REIT funds’ median fee increased 5 bps (8%) since 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. * Note the small number of respondents.

Published Versus Actual Fees: Global REITs


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 30125th percentile 94 92 200Median 61 78 15875th percentile 50 49 12690th percentile 32 32 52

Average 70 73 177

# of observations 9 28 22

Have an additional performance-based fee 13% 25% 65%

Fee Base: Committed Capital 78% 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 significant 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 figure (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. Sliding fee scales are 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


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 flat 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 performance component had a median fee of 88 bps. While the median is similar to funds with a performance fee component, the 10th percen-tile is 30 bps higher.

Most fund sponsors report quarterly redemption frequency (75%), and 90 days is the most common time period required to provide notice (74%).


HFOFs with performance incentive fees saw little change at the median for the flat management fee, but the per-formance incentive percentage declined from 10%. The median fee for HFOFs without performance incentive fees dropped from 105 bps in 2011 to 88 bps in 2013 (17%). Lock-up periods, which are generally 12 months in length, were more common in 2013 (100%) than in 2011 (50%).

A Trend commentary reflects comparisons of median fees. See Appendix 2 for 2011 data points. * Note the small number of respondents.

Actual Fees: Hedge Fund-of-Funds

10th percentile 100 10% 13025th percentile 100 10% 101Median 90 5% 8875th percentile 50 5% 6690th percentile 16 3% 38

Average 71 7% 87

# of observations 9 9 32


We asked fund sponsors to indicate their organizations’ plans for consolidating or expanding the number of manag-ers used for each asset class during the next 18 months.

As in 2011, the greatest percentage of fund sponsors expect to add managers in private equity (38%), real estate (33%), and commodity funds (24%). Hedge fund-of-funds dropped from the top four in 2011, when 44% of respondents expected to add managers to this asset class, to just 7% in 2014. In fact, 11% of managers now expect to decrease the number of hedge fund-of-funds managers in the coming 18 months.

Responses suggest that there will also be manager consolida-tion in core fixed income, where 18% of respondents expect to delete managers, and U.S. small cap equities (12%).

No respondents expect to consolidate managers in com-modities, global and emerging market fixed income, and infrastructure.

Future Manager Changes: Fund Sponsors

Indicate your organization’s plans to consolidate or expand the number of managers used for each asset class listed during the next 18 months.

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

Non-U.S. Fixed IncomeU.S. Small Cap Equity

U.S. Mid Cap EquityHigh Yield Fixed Income

U.S. Large Cap EquityCore Fixed Income

Core Plus Fixed IncomeEmerging Market Fixed Income

Hedge Fund-of-FundsGlobal Equity

Non-U.S. EquityHedge FundsInfrastructure

Emerging Market EquityGlobal Fixed Income

Commodity FundsReal Estate

Private Equity

Add managers Delete managers No changeNumber of

Respondents

38% 59%

24% 76%

4%

10%

23% 77%

7%

94%

5%

18% 78% 4%

87% 9%

2%

87%

3%

86%

97%

12%

39

213048

2154

39

37

31

3%

6%

85%

18

10%

3%

92%

27

5%

33% 64% 452%

5155

29

31

5138

23% 71% 6%

3%

78% 22%

76% 5%19%

72% 11% 17%

81% 3% 16%

81% 11%


We queried investment managers about their plans for consolidating or expanding product offerings across asset classes for the next 18 months. For each asset class, more than half of managers do not plan to make changes to their product offerings.

Responses reveal few intentions, if any, for consolidation across asset classes. The greatest percentage of managers indicated they would eliminate hedge fund-of-funds (5%) followed by real estate (3%). However, a far greater per-centage of firms indicated they would be adding both hedge fund-of-funds (36%) and real estate products (40%).

Absolute return (42%), emerging market equity (39%), and other fixed income (38%) also ranked highly on the list for planned product expansions.

Future Product Changes: Investment Managers

Indicate your firm’s plans to consolidate or expand product offerings during the next 18 months by selecting one option for each asset class.

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

Core Fixed IncomeCore Plus Fixed Income

Commodity FundsU.S. Small Cap EquityU.S. Large Cap Equity

BalancedU.S. Mid Cap Equity

High Yield Fixed IncomeInfrastructureOther Equity

Non-U.S. EquityNon-U.S. Fixed Income

Private EquityHedge FundsGlobal Equity

Other Fixed IncomeHedge Fund-of-Funds

Emerging Market EquityAbsolute Return

Real Estate

Add products Delete products No changeNumber of

Respondents

40% 58%

39% 60%

11% 12%

36% 60%

30%

85% 15% 2%

88%

12%

90%

2%

92%

4% 96%

40

622548

4224

49

43

46

3%

27%

86%

75

86%

10%

93%

82

8%

42% 58% 452%

22

80

28

43

9496

38% 60% 2%

7%

61% 39%

67% 64%36%

67%

4%

33%

70% 30% 33%

82% 73%70%

18%

21

6850


We asked investment managers about their perceptions of value-added for fees. Consistent with past surveys, invest-ment managers are more likely to report that their firm’s fees are justified, versus the fees of their peers.

Seventy percent of respondents strongly agree and 29% agree that the value-added provided by their specific orga-nization justified the fees paid by fund sponsors, while only 1% disagree. These figures are consistent with previous survey findings.

The numbers shift a bit when managers opine on industry-wide fees: Only 30% of managers strongly agree and 42% agree that industry-wide fees are justified. A mere 3% of investment managers do not believe industry-wide fees are justified, but one-quarter are neutral on the topic.

Investment Managers’ Perception of Value-Added Justifying Fees

Response to statement: “Value-added provided by investment managers justifies fees paid by fund sponsors.”

Strongly agreeAgree

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

Industry-wide fees are justified

My fees are justified 70% 29%

25%

27%

30% 42%

Neutral Strongly disagreeDisagree

1% 1%

1% 2%


While investment managers are confident in the value-added they provide (previous page), fund sponsors are not uniformly convinced. Fund sponsor organizations’ top con-cern regarding fees is whether or not active managers are providing the value-added to justify the fees (52%) followed by ensuring that the fees paid for the fund are competitive with comparable marketplace offerings (37%).

Other concerns expressed by fund sponsors include whether the index for determining performance fees is rea-sonable and a broad concern that fees are too high, despite successful negotiations to lower them.

Investment managers have a wider array of issues surround-ing fees. Their top concerns are fee pressure from market changes (29%) and the rise of indexing and/or ETF vehicles (19%). Other high priorities include increasing compliance, infrastructure, and/or other operating costs (16%), as well as the low rate environment (11%).

Top Fee Concerns

Fund sponsor organizations’ biggest issues or concerns regarding fees

Manager organizations’ biggest issues or concerns regarding fees

Ensuring that the fees paid for the fund are competitive with comparable marketplace 37%

Whether or not active managers are providing the value-added to justify the fees 52%

How to best benchmark fees against peers and what is available in the marketplace 8%

Other 3%

Fee pressure from market changes 29%

Rise of indexing and/or ETF vehicles 19%

Increasing compliance, infrastructure, and/or other operating costs 16%

Low rate environment 11%

Other 9%

New competition in the marketplace 7%

Proliferation of sub-advisor and UMA-type arrangements 6%

Volatile markets 3%


Appendix I: 2013 Published Fees for Additional Asset Classes

Large Cap Core Large Cap Growth Large Cap Value

<$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm10th percentile 88 88 86 88 88 75 87 79 76 73 70 65 78 75 73 71 71 63

25th percentile 75 71 65 62 60 60 75 71 67 63 61 57 75 70 61 60 57 53

Median 63 60 58 52 51 49 70 65 60 56 55 50 66 64 58 55 52 49

75th percentile 56 55 50 48 46 43 65 60 55 52 50 45 60 58 53 50 49 43

90th percentile 50 50 42 38 36 33 60 58 53 48 46 39 50 50 47 43 43 38

Average 66 64 60 58 57 54 72 67 63 59 57 52 67 63 58 55 53 49

# of observations 51 51 51 51 51 51 73 73 73 73 73 73 80 80 80 80 80 80

Small Cap Core Small Cap Growth Small Cap Value

<$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm10th percentile 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

25th percentile 100 100 95 90 88 84 100 100 100 95 94 88 100 100 100 95 94 90

Median 90 90 83 80 77 74 100 100 91 87 85 79 100 97 90 85 83 79

75th percentile 75 75 70 68 67 61 90 90 85 81 79 75 90 86 80 76 74 68

90th percentile 61 60 58 53 51 50 90 85 80 77 75 71 78 77 71 68 66 60

Average 88 86 83 80 79 75 97 95 91 88 87 83 94 92 88 85 83 79

# of observations 53 53 53 53 53 53 66 66 66 66 66 66 77 77 77 77 77 77

All Cap U.S. Equity Microcap U.S. Equity SMID Cap U.S. Equity

<$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm10th percentile 87 85 80 77 76 75 125 125 125 125 125 125 100 100 100 100 100 100

25th percentile 85 81 76 76 75 70 125 125 125 125 125 125 100 95 90 87 85 80

Median 75 75 70 66 65 57 125 125 113 108 106 103 95 90 85 80 79 76

75th percentile 70 68 60 57 55 50 100 100 100 100 100 100 85 85 80 77 75 69

90th percentile 65 65 59 55 52 42 100 96 93 90 90 85 80 80 75 72 68 63

Average 75 73 68 66 64 58 112 112 110 108 108 107 92 89 84 81 80 76

# of observations 16 16 16 16 16 16 21 21 21 21 21 21 69 69 69 69 69 69


Appendix I: 2013 Published Fees for Additional Asset Classes (continued)

Unconstrained Defensive Long Duration

<$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm10th percentile 76 76 76 74 73 70 39 37 34 32 32 32 38 35 32 30 30 26

25th percentile 65 65 65 63 61 58 35 35 30 30 29 26 35 35 30 30 28 24

Median 49 48 46 46 46 44 30 30 27 26 25 23 30 30 30 27 25 23

75th percentile 40 40 40 40 40 33 25 25 24 22 21 17 25 25 25 25 24 21

90th percentile 40 40 40 37 35 32 20 20 20 18 18 14 23 23 23 23 23 21

Average 54 54 54 52 51 48 30 29 27 26 25 22 31 30 28 27 26 23

# of observations 20 20 20 20 20 20 62 62 62 62 62 62 33 33 33 33 33 33

Short Term Intermediate TIPS

<$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm10th percentile 38 35 33 32 31 28 39 35 33 32 32 29 39 39 38 36 34 52

25th percentile 30 30 27 26 25 21 35 35 30 30 28 25 24 24 24 24 24 24

Median 20 20 20 20 20 18 30 30 29 27 25 23 13 13 13 12 12 13

75th percentile 20 20 16 15 14 13 29 27 25 23 23 20 6 6 6 6 6 6

90th percentile 10 10 10 10 10 10 20 20 20 20 20 15 5 5 4 4 4 3

Average 24 24 22 21 21 18 31 29 27 26 25 23 20 20 20 19 19 21

# of observations 42 42 42 42 42 42 48 48 48 48 48 48 18 18 18 18 18 18

Global Fixed Income Emerging Market Debt Active Cash

<$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm <$10mm$10-

$25mm$25-

$50mm$50-

$75mm$75-

$100mm$100-

$200mm10th percentile 50 50 50 49 49 45 75 75 75 75 75 73 26 25 21 20 20 20

25th percentile 45 45 45 42 40 35 65 65 65 65 65 60 20 20 20 20 20 20

Median 40 40 40 37 35 30 60 60 60 57 56 53 17 17 16 15 14 14

75th percentile 35 35 35 33 32 27 55 55 55 51 50 46 14 14 14 14 14 12

90th percentile 30 30 30 30 30 25 55 55 55 48 47 45 10 10 10 10 10 9

Average 42 42 41 40 39 35 50 50 50 60 59 56 18 18 17 16 16 15

# of observations 45 45 45 45 45 45 49 49 49 49 49 49 25 25 25 25 25 25


Appendix II: 2011 Published and Actual Fees

U.S. Large Cap Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 80 72 75 68 72 69 70 51 65 4025th percentile 72 65 65 60 63 55 60 43 58 33Median 64 57 59 56 55 50 53 35 48 2775th percentile 55 50 51 44 48 41 46 21 43 2190th percentile 50 35 43 31 42 30 40 14 34 16Average 65 55 60 51 56 50 55 35 50 27# of observations 200 43 200 26 200 31 200 30 200 57

U.S. Mid Cap Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 90 80 85 81 85 * 82 68 77 6525th percentile 80 75 80 69 75 75 55 67 60Median 75 58 70 55 68 66 53 59 4975th percentile 70 50 65 48 60 58 51 51 4590th percentile 56 43 52 36 48 46 47 43 43Average 75 61 71 57 68 66 56 61 53# of observations 62 16 62 8* 62 62 7* 62 12

U.S. Small Cap Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual


Global Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 91 * 90 * 90 * 86 * 82 5125th percentile 80 80 75 73 68 48Median 75 70 67 65 57 3975th percentile 70 64 60 58 51 3390th percentile 61 60 56 55 48 25Average 76 72 68 67 61 40# of observations 78 78 78 78 78 14

* Insufficient fee data or small sample size.


Appendix II: 2011 Published and Actual Fees (continued)

Non-U.S. Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual


Non-U.S. Small Cap Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 100 * 100 * 100 81 100 84 100 * 25th percentile 100 95 93 77 92 78 88Median 95 90 85 75 83 74 8075th percentile 85 80 80 63 80 68 7590th percentile 76 75 75 62 75 62 71Average 92 90 87 72 86 73 83# of observations 37 37 37 9* 37 7 37

Emerging Market Equity - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 113 126 110 * 103 * 100 * 100 7825th percentile 100 114 100 100 100 91 71Median 100 105 95 95 92 88 6675th percentile 90 95 90 86 84 81 5590th percentile 80 58 80 78 77 75 48Average 97 98 96 94 93 88 63# of observations 66 9* 66 66 66 66 10

U.S. Broad Fixed Income - ActivePublished Actual Published Actual Published Actual Published Actual Published Actual





High Yield Fixed IncomePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 10 10 9 10 9 * 9 7 9 425th percentile 8 8 8 8 7 7 5 6 3Median 8 5 7 6 6 5 4 4 275th percentile 5 4 5 5 5 5 3 4 190th percentile 5 3 5 3 4 4 3 3 1Average 7 7 7 6 6 6 6 5 2# of observations 16 15 16 8* 16 16 10 16 17

U.S. Large Cap Equity - PassivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 10 10 9 10 9 * 9 7 9 425th percentile 8 8 8 8 7 7 5 6 3Median 8 5 7 6 6 5 4 4 275th percentile 5 4 5 5 5 5 3 4 190th percentile 5 3 5 3 4 4 3 3 1Average 7 7 7 6 6 6 6 5 2# of observations 16 15 16 8* 16 16 10 16 17

Non-U.S. Equity - PassivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 16 17 16 * 15 * 15 * 12 925th percentile 15 15 15 13 13 11 5Median 14 14 14 12 12 10 475th percentile 12 6 12 11 10 8 390th percentile 10 3 10 9 9 7 1Average 13 11 13 12 12 10 4# of observations 12 6* 12 12 12 12 14

U.S. Broad Fixed Income - PassivePublished Actual Published Actual Published Actual Published Actual Published Actual

<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm10th percentile 10 * 10 * 10 * 10 * 9 625th percentile 8 8 8 8 7 4Median 7 7 7 7 6 375th percentile 6 6 6 6 5 290th percentile 5 5 5 5 5 2Average 7 7 7 7 6 3# of observations 15 15 15 15 15 8*




Real Estate - Published Fees Actual Fees<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm All Account Sizes

Core Open-End Value-Added Core Open-End Value-Added Core Open-End Value-Added Core Open-End Value-Added Core Open-End Value-Added Core Open-Ended10th percentile 109 150 100 150 100 150 100 150 100 142 9125th percentile 100 125 97 125 94 125 90 125 86 125 84Median 95 110 88 110 86 110 85 100 85 100 6875th percentile 83 100 82 100 80 100 79 100 70 85 5890th percentile 66 58 60 58 60 58 60 58 60 58 50Average 89 109 85 107 83 107 81 104 79 102 70# of observations 22 29 22 29 22 29 22 29 22 29 14

REITs - Published Fees Actual Fees<$25mm <$25mm $25-$50mm $25-$50mm $50-$100mm $50-$100mm $100-$200mm $100-$200mm >$200mm >$200mm All Account Sizes

Separate Acct. Commingled Separate Acct. Commingled Separate Acct. Commingled Separate Acct. Commingled Separate Acct. Separate Acct. Commingled10th percentile 84 87 80 84 79 75 76 75 76 75 8225th percentile 80 85 80 80 75 75 70 74 69 74 69Median 77 75 75 75 71 71 64 69 63 69 6275th percentile 70 70 65 70 64 69 59 67 58 66 4890th percentile 65 70 63 66 58 60 53 61 52 60 40Average 75 78 73 75 68 71 64 70 63 69 60# of observations 24 13 24 12 24 12 21 11 21 11 10

Private Equity Hedge Fund-of-FundsWith Performance No Performance

Separate Acct. Fund-of-Funds Incentive Fees Incentive Fees10th percentile 133 155 100 11% 14925th percentile 100 110 100 10% 130Median 77 100 88 10% 10575th percentile 63 100 76 10% 10090th percentile 48 87 48 10% 84Average 88 108 81 11% 114# of observations 7* 13 10 10 13

* Note the small sample size.

About Callan Callan was founded as an employee-owned investment consulting firm in 1973. Ever since, we have empowered institutional clients with creative, customized investment solutions that are uniquely backed by proprietary research, exclusive data, ongoing education and decision support. Today, Callan advises on more than $1.8 trillion in total assets, which makes us among the largest independently owned investment consulting firms in the U.S. We use a client-focused consulting model to serve public and private pension plan sponsors, endowments, foundations, operating funds, smaller investment consulting firms, investment managers, and financial intermediaries. For more information, please visit www.callan.com.

About the Callan Investments InstituteThe Callan Investments Institute, established in 1980, is a source of continuing education for those in the institutional investment community. The Institute conducts conferences and workshops and provides published research, surveys, and newsletters. The Institute strives to present the most timely and relevant research and education available so our clients and our associates stay abreast of important trends in the investments industry.

For more information about this report, please contact: Your Callan consultant or Anna West at [email protected]

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2014 Callan Investment Manager Fee Survey