The issue of so-called “alpha and beta separation” has come to dominate almost every discussion of asset management trends in the US, and to a lesser extent, the European and Asian markets. This development has mirrored the rising interest in, and availability of, alpha-generating hedge funds on the one hand, and beta-tracking exchange-traded funds (ETFs) on the other. Juxtaposed against this polarisation of investment products is the polarisation of fees – that is, how much more can managers continue to charge for alternative products and absolute returns and how much less can investors pay for simply accessing beta.
In the Asian markets, while the theoretical debate appears to have gained much ground, practical changes have been mitigated by the limited number of retail hedge funds and ETFs, and for now, there are only cautious flows into such products from institutions and retail investors alike. That said, managers in Asia should be prepared for the eventual unfolding of fee trends that reflect those prevalent in the more developed markets; that is, fees for passive funds heading further south, while at the other extreme, a succession of new highs for fees charged by alternative funds.
