Cost matters. So, we strive to provide our clients with access to a sophisticated investment platform at a lower cost than they would have to incur to develop similar capabilities themselves.
Today, we serve our clients on a cost-recovery basis and are focused on prudently managing our investment and operating costs. We want to preserve the cost advantage arising from economies of scale for our clients.
Scale is a key driver of our ability to manage investing costs. Our size means we can enter strategic partnerships, co-invest and access investments directly in a manner that would be difficult for smaller funds. As a result, we can reduce overall costs associated with alternative investments for our clients.
Our clients will incur costs of 2 basis points (estimated) to access dedicated asset allocation and risk management capabilities. For a $1-billion fund, without our scale, this same management and oversight team would add in the range of 60-80 basis points to their costs, which is not affordable for many clients.
While passive investing typically leads to lower costs for our clients, we believe that active investing can create the potential for higher net returns. We therefore always evaluate whether active versus passive, internal versus external, or public versus private approaches are appropriate. We weigh several factors including costs, potential to achieve outperformance, and benefits in terms of risk oversight. In public markets, we will use low-cost strategies where it makes sense and higher conviction strategies where our research indicates the potential for strong performance.
For smaller funds that cannot invest directly in private markets, they incur significant external asset management fees and typically lose 20% of the return above the hurdle rates to performance fees.