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Insights from Callan's 2025 Cost of Doing Business Study

Callan, a prominent institutional investment consulting firm, has unveiled the findings of its 2025 Cost of Doing Business Study, providing a thorough analysis of the investment management expenses borne by institutional investors. The study encompasses data collected from 180 asset pools, amassing over $772 billion in assets, offering a detailed look at the fees encountered in the year 2024 while extending observations that date back to 2010.

Importance of the Study

The relevance of this research is paramount for institutional investors as it serves as a vital benchmark for assessing the cost-effectiveness of their investment initiatives. According to Ivan "Butch" Cliff, the executive vice president and director of research at Callan, the study highlights a crucial reality: even as investors seek to reduce costs within various asset classes, there is a notable shift in asset allocation towards alternatives, resulting in an overall increase in total fund expenses.

Key Findings

1. Average Fees Across Investor Types: The study revealed that total investment management fees averaged 40 basis points across all categories of investors, which include nonprofits, public funds, corporate funds, and insurance pools.
2. Impact of Asset Allocation on Fees: Asset allocation is identified as the predominant factor influencing total fund fees. Many institutional investors are gravitating towards private equity, private credit, and real assets, alongside a modest inclination towards hedge funds. This shift often necessitates accepting higher fees due to the potential benefits of diversification and improved returns.
3. Fee Trends for Nonprofits and Corporates: Since 2020, average fees for nonprofits have surged by 16%, whereas corporate and public fund fees have experienced declines of 17% and 4%, respectively.
4. Larger Funds vs. Smaller Funds: Generally, larger funds incur 24% to 37% more in total fees compared to their smaller counterparts. This disparity is primarily due to a greater allocation to higher-cost alternatives.
5. Cost-Saving Strategies: Although some cost savings were realized through passive investment strategies and consolidating managers, these savings were frequently eclipsed by escalated investments in more expensive asset classes.

Historical Context and Methodology

Callan's trend analyses have been ongoing since 1998, with updates provided in 2002, 2005, 2009, 2013, 2016, and 2021. The latest study has also integrated data from Callan’s proprietary custody fee database, enabling institutional investors to scrutinize those costs comprehensively. Additionally, it offers enhanced details concerning the types and sizes of the funds involved:

• - Nonprofits were categorized into two segments: those above and below $1 billion.
• - Corporate funds were classified based on total return versus liability-driven plans, further segmented by size.
• - Public funds were divided into three categories based on their asset sizes, while insurance pools were included for the first time.

Conclusion

As institutional investors navigate the complex landscape of investment management fees, understanding these trends becomes crucial in shaping their strategies. Callan's commitment to providing detailed and actionable data equips investors to make informed decisions, ensuring they can effectively manage costs while seeking optimal returns. With Callan serving over $3 trillion in assets for various institutional clients, their research continues to be a critical resource in the industry.

To learn more, visit Callan’s official website.