The UK fund industry is wasting £700m a year running small, inefficient funds which should be merged to slash high cost-to-income ratios, according to Mercer Oliver Wyman.
It estimates that 55 per cent of the 2,000-plus funds in the UK have less than £40m under management, which Mercer reckons is the threshold needed for firms to turn a profit. Around 285 funds have less than £25m, which is a level, according to Mercer, where costs outstrip annual management fees.
Mercer says fund managers should transfer assets to competitors and third-party providers. If the industry cuts the number of funds in each sector to 100, Mercer believes that overall operating costs could be halved without affecting consumer choice.
Even if each sector had just 20 funds, Mercer says retail investors would still have 260 funds to choose from while fund managers would see a 20 per cent improvement in their cost-to-income ratios.
Mercer Oliver Wyman managing director Mike Harding says: “For individual asset managers, there is a real opportunity to rethink whether competitive advantage accrues from the management of smaller funds or the branding. They could look for opportunities to outsource.”
New Star marketing director Rob Page says: “Many fund groups are losing money on not just one fund but across a host of them. At some stage, they will have to do something about it.”