Business

A tech startup wants to prove clients don’t enjoy a performance premium by paying high fees

Company founder Chris Sier is planning to raise money for ClearGlass, a company which uses its database to help clients negotiate cuts in the fees they pay to asset managers.

Its Series A initiative is timely given that fees become penal when managers produce low, or negative, returns as has been the case for much of this year. In most markets, costs tend to mean that net returns from managers lag the index.

Sier, a former policeman, is renowned for the battle he has waged for 15 years to shine a light on hidden management costs at pension schemes. At one point, he was appointed by the UK regulator to advise it on reforms to achieve greater transparency.

ClearGlass has taken advantage of the new regime to build a massive database of costs incurred in managing pension scheme mandates.

It raised money through a seed round in May 2021, backed by individuals in the UK pension community, plus VC firms Lakestar and Outward.

Details of the new fundraise have yet to be finalised, but Sier wants to hire more talent and develop his business abroad. To date, ClearGlass has collected 18,000 cost templates. Its clients comprise pension schemes and asset managers. Sier also offers his service to family offices and sovereign wealth funds. 

ClearGlass has just published an analysis of absolute return bond funds which breaks down costs incurred at mandates managed for 115 pension schemes by 31 managers.

It discovered that clients do not enjoy a performance premium by paying high fees. On the contrary, low transaction costs tend to produce top quartile performance because its tax on returns is relatively low.

ClearGlass reinforces the position of clients in fee negotiations by adding its fee data to information provided by consultants. Taken together, they suggest a median cost cut of 42 basis points, achieved with the help of economies of scale.

ClearGlass also advises clients on ways they can negotiate a fee reduction by understanding the way managers view their clients. Managers, for example, may be desperate to fill spare capacity or view its client as prestigious and capable of luring business from others. 

This can make managers desperate to offer a big fee cut, which they strive to keep under wraps.

According to the ClearGlass bond manager analysis: “Asset managers tend to overstate ongoing charges to provide room for negotiation but these markups are variable and unknown to investors.” 

ClearGlass data then becomes valuable. Sier says: “It’s crucial to back up your arguments with data. It’s a language that managers understand and respect.”

ClearGlass also carries out an analysis of returns and costs, to help asset managers to judge optimal pricing points in return for a fee. It is developing a manager benchmarking service.

In its analysis, it found the only two bond managers with top-quartile performance and cost savings over five years were Blue Bay and US-based Reams Asset Management, both of which used to be owned by their employees, prior to being bought by larger firms.

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