The move, which the company committed to in its assessment of value report in October 2022, will be effective from 6 October 2023, but will only apply to strategies with at least £1bn in assets under management.
The base annual management charge (AMC) for funds under the £1bn threshold will be 75bps, with a discount applied progressively as AUM grows.
A 5% discount will be applied to funds with AUM between £1bn and £3bn, bringing the AMC to 71.25bps. Consequently, funds with AUM between £3bn and £5bn will see a 7% discount to 69.75bps, while those with AUM over £5bn will have an 8% discount applied with an AMC of 69bps.
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In the letter, BlackRock explained the discount will only apply to the fund’s total net asset value that “falls within the ranges”, meaning that only the proportion of NAV above £1bn and/or within the other categories will receive the respective discount.
However, if a fund’s AUM falls below the £1bn threshold, the tiered pricing will be paused and then reinstated only when, or if, its assets grow above that limit.
The asset manager said it “reserved the right” to change the ranges at which discounts apply, or change the discount applied for any given band, as they may also vary according to unit classes.
The 41 funds in question belong to seven ranges, namely the BlackRock Absolute funds, Charities funds, Collective Investment funds, Institutional Bond fund, Investment funds, Authorised Unit funds and Authorised Unit trusts.
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Out of the 41, only seven strategies currently meet the £1bn criteria, meaning that investors in the remaining 34 funds will not see an immediate reduction in pricing at the time of implementation next month.
The tiered pricing will not apply to BlackRock’s institutional funds, as fees are negotiated separately with fund investors, as well as to index and index-like funds, since they are priced at scale at launch.
The company’s Consensus and MyMap ranges will also not benefit from the incoming pricing model, as they primarily use index funds as their building blocks. Yet the asset manager noted there will not be a universal exclusion for funds-of-funds from tiered pricing.
BlackRock explained the decision is not part of a regulatory nor industry standard, as it was not mandated by the Financial Conduct Authority, but it was a way to share value with investors.
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A spokesperson for BlackRock said: “BlackRock’s UK authorised fund range has delivered, and continues to deliver, value for money through economies of scale generation and sharing, as evidenced by prior assessments of value.
“BlackRock believes that tiered pricing represents an appropriate way to share further scale benefits on eligible BFM funds to UK retail investors.”
Industry reaction
Ben Yearsley, consultant at Fairview Investing, said it was “about time” economies of scale were passed through to investors, especially considering how the practice has been quite common with investment trusts.
“It is good to see it is filtering into open-ended funds now as well,” he added.
James Yardley, senior research analyst at Chelsea Financial Services, echoed Yearsley’s view on passing economies of scale to retail investors, noting how BlackRock’s decision was a bid to “future-proof the business going forward”, considering its funds were already offering good value.
He added: “The discount will not apply to the funds immediately though, and the point at which it start depends on the current fund size – for example a smaller fund of £15m will get the discount when assets reach £1bn, but a larger run of £4.5bn will not apply the discount until it reaches £7.5bn.
“So if funds grow to certain levels and hit certain thresholds, then all is well. It’ i important to note it only applies to the UK-domiciled fund and does not include the index funds or multi-asset funds or institutional ones.”
However, Yardley highlighted that the way the tiered system was set with all the different high water markets was “perhaps unnecessarily complex”.
