With deft negotiation the largest institutions manage to slash active management costs, report reveals
A new industry study is pulling back the curtain on what large institutional investors truly pay for investment management; an eye-opener for those in the retail space.
Negotiated fees across thousands of institutional mandates reveal the true cost of pricing in asset management. Rather than relying on published fee schedules, the research focuses on actual contract terms, revealing how far fees have evolved and where further reductions may be limited.
For retail-focused advisors, the institutional data may provide a powerful benchmarking tool, helping frame conversations about cost, value, and product selection in an increasingly fee-conscious marketplace.
For years, asset managers have faced relentless pressure to reduce fees, particularly in traditional active equity strategies. Callan’s 2025 Investment Management Fee Study examines the latest data and finds that while negotiated fees have continued to trend lower, the rate of decline has moderated. In other words, institutional investors have already captured much of the easy savings.
This suggests that future fee compression in active strategies may be incremental rather than dramatic, which may surprise clients who assume fees will perpetually fall.
The study highlights just how wide the pricing gap has become between passive and active management. Institutional investors are paying extremely low basis-point fees for indexed US equity exposure, while specialized or alternative strategies still command significantly higher compensation.
Fee dollars are highly concentrated
A relatively small subset of investment managers captures a disproportionate share of total active management fees paid by institutions. This concentration highlights how brand strength, performance reputation, or specialized capabilities can sustain premium pricing even in a competitive environment.
The research also confirms that separate accounts remain a dominant structure in institutional portfolios, in part because they allow for customization and direct fee negotiation. While most retail investors do not have access to the same pricing leverage, the trend reinforces growing interest in customized managed accounts and model portfolios in the wealth channel.
High-net-worth and family office clients, in particular, may benefit from structures that provide greater transparency and pricing flexibility.
What retail advisors can do with this data
Institutional investors operate at a scale most retail clients cannot match, but their negotiated fee levels provide a valuable reference point. Advisors can use these benchmarks to:
- Evaluate whether retail products are priced competitively
- Explain why passive options remain cost leaders
- Frame realistic expectations for active management fees
- Strengthen due diligence on higher-cost alternatives
"We're seeing continued pressure on actual fees paid for active management, but the pace of fee compression seems to be slowing and may be approaching a practical lower limits for quality institutional products in some asset classes," said Ivan "Butch" Cliff, study author and Callan's director of research.
Among the key findings:
- 97% of total fees paid were to active managers (down 1% from our last study in 2023)
- 61% of total assets were managed actively (down 1% from 2023)
- 50% of total active fees went to 11% of the investment management firms
- Highest average basis point fees went to hedge fund-of-funds (113 bps) and private real assets (88 bps)
- The lowest went to passive US large cap (1.9 bps) and US small cap (3.1 bps)
- Fee resilience was strongest for private real assets, hedge fund-of-funds, global ex-US equity, and emerging equity
- Fee weakness affected core-plus fixed income, US smid/small/macro, high yield/bank loans, and emerging debt
- Passive usage in US smid-/small-/micro- cap equity increased 6% from 2023 to 29%, while passive usage for core fixed Income increased 2% to 47%. Meanwhile, passive usage decreased slightly for both US large cap equity (-3% to 70%) and Global ex-US equity (-1% to 41%).
- Separate accounts were the most popular investment vehicle by far (54% of products)
- Public funds had the largest share of AUM by percent of mandates (34%) and percent of assets (50%)
