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Callan's 2025 Investment Management Fee Study

In its latest report, Callan, a renowned institutional investment consulting firm, has unveiled its 2025 Investment Management Fee Study, marking the 11th iteration of this comprehensive research project. This study dives deep into the world of institutional investing, shedding light on the fees actually paid by institutional investors in relation to the services they receive, particularly in the contexts of asset management, both active and passive.

Key Highlights of the Study

The study encompasses an extensive analysis of fee structures across 23 different asset classes, with a focus on how the size of mandates influences fees. Crucially, it allows stakeholders to discern the contrast between the fees that institutional investors negotiate and the fee schedules that investment managers publicly advertise.

Ivan "Butch" Cliff, the lead author of the study and Callan’s Director of Research, commented on the findings, noting that while there is persistent pressure on the fees charged for active management, the rate of fee compression has been slowing down. He warns that the fees may be nearing a threshold where quality products at a premium cannot be feasibly offered at lower prices.

The Data Behind the Insights

Callan’s proprietary database played a crucial role in this study, pulling data from actual client fee schedules and investment performance reports. The insights draw upon fee trends from 2024, reflecting $784 billion in assets under management (AUM) and a staggering $1.9 billion in total fees paid. The firm’s database accounts for nearly 329 investment firms and approximately 180 institutional investors.

Examination of Fee Trends

The study details several noteworthy trends:

• - Active vs. Passive Management: A significant 97% of total fees were allocated to active managers, a slight decline from the 98% reported in 2023. Furthermore, 61% of the total assets were under active management, showing a gradual shrinking from the previous year.
• - Dominance by Few: A striking 50% of total active fees was earned by only 11% of the investment management firms, illustrating a strong concentration within the market.
• - Fee Ranges: The average basis point fees highlighted that hedge fund-of-funds commanded the highest average fees at 113 basis points, followed by private real assets at 88, whereas passive U.S. large cap and small cap experienced much lower fees at just 1.9 and 3.1 basis points, respectively.
• - Variability in Fee Resilience: Areas such as private real assets and hedge fund-of-funds demonstrated strong fee resilience, while core-plus fixed income and high yield/bank loans exhibited notable weaknesses.
• - Rise in Passive Management: The use of passive management in U.S. small/micro cap equity increased by 6% from 2023. In contrast, there were minor decreases in passive usage for both U.S. large cap equity (down 3%) and global ex-U.S. equity (down 1%).
• - Preference for Separate Accounts: Separate accounts proved to be the preferred investment vehicle, making up 54% of the products surveyed, showing a clear preference among institutional investors.

Conclusion

The findings from Callan’s 2025 Investment Management Fee Study are pivotal for institutional investors, investment managers, and policymakers, providing critical insights into the ongoing evolution of the investment management landscape. As the industry continues to grapple with fee pressures, the data may help guide future strategies for both investors and managers alike.

Callan, established in 1973, serves as a leading voice in empowering institutional clients, advising on over $3 trillion in assets, and is recognized for its innovative and client-focused approach to investment consulting.