Fundies face into further fee compression

Mike Taylor

Managing Editor and Publisher

19 June 2025

Australian fund managers are facing into continuing fee compression, according to new analysis from research and ratings house, Morningstar.

The analysis from Morningstar senior analyst, Sean Ler, points to large passive managers using scale to lower prices to attract assets – something which is then impacting active managers who then trim their own pricing.

And Ler suggests this scenario is not set to change any time soon, stating that “we expect further fee margin compression for all our covered managers for the five years to fiscal 2029”.

His analysis said traditional active managers are likely to continue losing market share, particularly to exchange traded funds (ETFs) which offer lower fees and efficient access while replicating simpler active strategy.

“Among active managers, firms focused on conventional equity, fixed income, and multi-asset strategies remain at risk, given their replicability by passive vehicles,” Ler’s analysis said. “Conversely, firms specializing in less commoditized segments—such as private credit or specialized fixed income strategies—are better-positioned to grow.”

Ler nominated Perpetual and Insignia as presenting the most compelling relative value within Morningstar’s coverage, when considering their respective uncertainty ratings.

“We believe the market under-appreciates several drivers,” he wrote. “For Perpetual, these include the potential upside from cost reductions, the compounding of managed funds, and its corporate trust division, which delivers steadier earnings.

“For Insignia, share prices drivers are likely slower fee compression, more stable medium-term fund flows, and opportunity to reduce duplicated costs and extract scale efficiencies.”

Ler’s analysis pointed to adverse impacts of the US administration’s “fickle stance on trade policy”.

It noted that most ASX-listed asset managers have underperformed the ASX 200 Total Return Index since the start of 2025.

“Challenger is the only notable out-performer, likely reflecting investor optimism on the potential for improved margins. GQG is broadly tracking the index, while others are underperforming due to firm-specific issues such as weak flows or waning corporate interest from suitors.”