One of the most common questions we receive is: what costs are actually benchmarked by CEM?
Is carried interest included? What about VAT? Does CEM benchmark marketing expense?
These are the types of questions we hear frequently. They matter because the answers directly shape how you interpret results, compare with peers, and use insights in decision-making.
We receive investment data from 300+ institutional investors from 15+ regions around the world. Ensuring that the comparisons are apples to apples across organizations and geographies is crucial to our benchmarking.
Our approach is grounded in three principles: completeness, comparability, and accuracy.
The TLDR: We aim to reflect the true cost of investing and operating, while avoiding distortions caused by inconsistent data across the industry.
Start with the full picture, but be practical
In an ideal world, we would benchmark all costs. In practice, not every cost is consistently available or comparable.
So, we take a balanced approach:
• Include costs where reliable data exists
• Support organizations with stronger transparency
• Impute missing costs when not doing so would bias results (e.g., fund-of-funds fees, which if excluded would make funds of funds appear lower cost)
• Exclude costs where data is immature and does not materially affect conclusions or cannot be properly contextualized by our team
Investment costs: what we include and why
Our goal is to capture the true economic cost of investing. CEM’s simple rule is: if a cost reduces returns, and is measurable, it should be included.
We take a comprehensive view:
• Costs netted from returns are included
• Costs before offsets (e.g., revenues or reimbursements) are included
• Applicable taxes (e.g., VAT, GST) are included
• Non-cash costs (e.g., soft dollars) are valued and included
Today, this includes:
• Gross base management fees (more consistent and contract-based than net)
• Performance fees and carried interest
• Internal investment management and oversight costs
• Other direct investment costs (e.g., consulting, custody, audit tied to investments)
Costs can be reported at the individual mandate/option level or the asset class/program level.
Investment costs: what we exclude (for now) and why
Some costs are excluded to preserve comparability:
• Transaction costs: inconsistently reported and volume-driven
• Partnership expenses: not yet standardized or widely available
• Property management costs: operational, not investment decision-related and not consistently available across operating models
• Non-investment activities such as marketing or product development costs for defined contribution funds in competitive markets
We continue to reassess these areas as industry data improves. In some regions, we are already collecting partnership expense data in anticipation of future inclusion.
There is a long-term trend towards more and better data being available, driven by maturity of alternative strategies within institutional portfolios, improved technology, and the collective efforts of industry stakeholders around the world. Given this trajectory, we continually reassess when costs that are currently excluded should become included.
Pension administration costs: what we include and why
For administration benchmarking, we take a full-cost view to align costs with pension administration activities that generate those costs. This provides a clear view of where resources are allocated. Both business-as-usual and major project costs are included.
• Staff costs: salaries, bonuses, benefits, employer taxes
• Third-party costs: consulting, outsourcing, professional services
• Other direct costs: travel, training, subscriptions, operations
Pension administration costs: what we exclude and why
Costs that are not comparable across funds are excluded.
• Healthcare
• Third-party and optional benefits
• Insurance administration, inclusive of disability (for DC only)
• Marketing or product development costs for defined contribution funds in competitive markets
• Financial advice (for DC only)
Our cost reporting guidance aligns with CEM’s Global Reporting Principles. You can read more about the principles here.
Benchmarking is only as useful as it is credible. Too little creates blind spots. Too much, without consistency, creates noise.
Our approach is designed to ensure results are:
• Comparable across peers
• Reflective of real economic costs
• Transparent in how they are constructed
This is an evolving process. As reporting improves, and with input from our client advisory boards, we will continue refining what is included and how it is benchmarked.
All costs that are excluded from our benchmarking are disclosed in our reports. For clients interested in going deeper into costs not covered in our investment and administration benchmarking, our Research and Analytics team provides bespoke solutions in the form of custom research tailored for you.
You can reach out to our Research & Analytics team at: research@cembenchmaring.com