At the start of the two-day AsianInvestor fourth annual investment summit in Hong Kong yesterday, Peter Ryan-Kane, head of portfolio advisory for Asia-Pacific at Watson Wyatt, made the point that to simply say that fees are too high is naive. He and the other panellists at the conference agreed that there are many parties and factors involved in determining fees -- the fund managers, the service providers, the regulators, the clients -- and finding the right balance can be tricky.
"To say that fees are too high is a bit like saying everything in the shop is expensive," says Ryan-Kane. "It's just not helpful."
A blanket argument for lower fees is counterproductive, he says, adding that there are areas that need to be reviewed such as the fee structure of alternative investments.
Kai Shi Lau, chairman of the Hong Kong Retirement Schemes Association (HKRSA), notes that there is always pressure for providers to lower fees and even more so during volatile times. "When the market is down, people are not in the best of mood," say Lau.
One way that fees can be lowered, if at all possible, is by streamlining and automating the way pension fund portfolios are run and supported to help reduce cost per transaction.
As a regulator, the position of Hong Kong's Mandatory Provident Fund Schemes Authority is straightforward. "We want fees to be as low as possible," says Darren McShane, executive director of the MPFA. "It will always be an important issue for us because of consumer protection."
Transparency in the fee structure of funds is seen as a step in the right direction. "Disclosure is just one of the building blocks," says McShane. "It's hard for anyone to be judgemental on fees. The best you can do is make the market work as efficiently as you can."
David Elia, CEO of HostPlus, notes that disclosure presupposes that members of pension platforms are "engaged and financially literate". He uses himself as an example of someone who, despite his 20 years in the industry, still struggles to understand the nature of the fees and what he is paying for. HostPlus is Australia's superannuation fund for the hospitality, tourism, recreation and sport industries.
While most pension fund portfolio providers charge a fee that is a percentage of assets, HostPlus charges a fixed rate.
For her part, HKRSA's Lau says one problem providers of pension fund portfolios suffer from is the more stringent disclosure requirements. For example, they are required to disclose total expense ratios while traditional investment funds are not.
The poor performance of pension fund portfolios since the onset of the global financial crisis has given providers an opening to renegotiate fees. Another opening has come in the form of shifts in strategies, particularly among hedge funds.
"Clearly, as a consequence of the credit crunch, some strategies are not available and the strategies of the funds that are available have changed," says Elia at HostPlus. "This has given us the capacity to renegotiate fees."