Few would disagree that we are in the throes of major changes in the global asset management industry. There are major forces reshaping the industry globally.
Acquisitions, mergers and spin-offs from banks are rapidly changing the playing field. This is driven by major regulatory changes, increased capital requirements and the changing economics of the business.
Fund managers are under increased pressure to justify their fees to clients and need to be even more attuned to the specific needs of different investors groups such as pension funds, financial advisors and family offices in their targeted geographical markets.
Actively managed mutual funds and their managers are under particular pressure due to the success of ETFs. An ever-increasing number of managers have launched ETFs and a number of other major players have recently announced plans. Even managers of alternatives have found ways of packaging their offerings as ETFs. This is becoming a hotly-contested space.
In Europe the imminent rolling out of UCITS IV offers greater scope for rationalisation and cost reduction. Master-feeder structures will allow a marriage of domestic and off-shore funds while the Management Company Passport will facilitate increased efficiencies in servicing funds. This is likely to further strengthen the UCITS brand and extend its invasion of Asia and South America.
Managers of alternatives are also adopting the UCITS framework to benefit from its reputation and to reassure very nervous investors. In tandem with this, alternative funds are migrating from offshore locations, notably the Cayman Islands, to safer onshore locations such as Ireland and Luxembourg ahead of the upcoming AIFM Directive and tax clamp-downs.
These overlapping waves of changes are giving rise to a very different industry landscape as some business models are fading, others are growing rapidly offering up a host of opportunities and challenges.
What is clear is that the acute focus on value, efficiency and safety that we have seen in the past year is unlikely to fade, even as the markets have turned fairly positive and risk tolerance is increasing.
The asset servicing industry has likewise come under extreme cost pressure and increased scrutiny. This has led to further consolidation, especially among providers of commoditised services. Other service providers have flourished due to the increased need for separation of functions and transparency within the industry.
The funds industry has always relied heavily on outsourcing of services, but now outsourcing has spread wider and deeper within the industry. Asset managers are now outsourcing many compliance, risk management and other functions previously carried out in-house.
Administrators have turned to specialist providers to enable them to offer the best and most cost-effective solutions across an increasingly wide range of services they are expected to provide to funds.
This unbundling and specialisation of services is gathering pace and is likely to accelerate under UCITS IV and the new AIFMD regime.
Jim O’Reilly, Managing Director, FundAssist Ltd