Family Offices Drive Down External Asset Management Fees By 10%

FundFire reports that “family offices are putting ‘relentless pressure’ on external management fees as they seek to offset higher costs they face in other areas, according to a survey from Family Office Exchange.”

The publication interviewed family office executives, who point to a growing focus on lowering fees in order to boost returns for families. Mauricio Gruener, co-founder and managing partner of GFG Capital, was among the advisors interviewed.

“Reducing cost is a big way of adding value to the families. Savings translate into higher returns,” says Gruener.

According to Gruener, over the past few years, family offices have been increasingly pressuring U.S. and European equity managers to reduce their fees and expense ratios. “Active managers have become very fee-conscious and are more aggressive and willing to cut their fees,” Gruener explains. “Concessions are often linked to the amount of capital committed to a strategy.”

Reducing managers’ fees is only one way that family offices are seeking to reduce costs. Gruener explains that family offices have also been increasingly turning to low-cost vehicles or passive management. As a result, GFG Capital recently made a change to its models to allocate a percentage of large-cap value, large-cap growth and international developed equity assets to actively managed exchange traded funds (ETFs), aiming to lower fees and further diversify portfolios.

While lowering fees is always the goal, there are some scenarios where the firm is still willing to pay a higher fee to a manager, Gruener says. “As long as a manager produces alpha and delivers results in a consistent basis, you’re more willing to pay for fees. If they have a distinct strategy, which is unique, you’re willing to pay for that,” he explains.

To read more, see the full FundFire article available to subscribers here.