I get it – if you are an asset manager, you buy expertise and access to markets so you can make more profit.

But why does  the light pink box deliver so much more in revenues, relative to their “modest share” of the asset pool?

In Brooke Masters’ FT article , a number of reasons are put forward

1. There aren’t many “alternatives” managers so you have to pay them a lot
2. Alternative managers like to get performance fees (so they can get paid a lot)
3. The price of buying up alternative managers is going up (so they can get paid a lot)
4. While institutional managers are capping fees , there are plenty of suckers in the wealth management game.
5. Big brands can make alternative investing look acceptable and pick up retail business from the suckers.

Well this isn’t quite how it’s expressed but the FT article puts a pretty compelling case for wanting to work in alternatives or be a part of a bonus pool where alternatives are a major line of business.

“Alternatives” in this context can be taken to be investment in just about any asset that isn’t listed on a major market.

Another way of looking at this

There is a school of thought that goes “fund managers are not entitled to the 30% margins they have historically enjoyed.

We do not have to play their game and we can choose not to pay high fees by avoiding alternatives or pay lower fees than those demanded to access alternatives.

We can avoid being suckers by getting proper intermediaries like trustees , IGCs and large scale wealth management platforms – which get a better deal for us.

We will push back on paying full price on alternatives and vote with our feet if we have to.

But this supposes we are good buyers – which is something we haven’t traditionally been.

Even when we let our employers do the buying for us

and that’s why we need the protection of regulators, the transparency of costs and charges and the intervention of the OFT and CMA when things aren’t working.

Those words from the OFT are getting on for ten years old and since then we have seen a remarkable improvement in pension fund governance, resulting from smarter work by trustees and IGCs, ongoing pressure from FCA and a general awareness from all those buying pensions, that charges matter.

We are playing better, but we shouldn’t drop the ball at this stage. No one doubts the importance of patient and productive capital or doubts that there is value in private markets. But not at any price.