Traditional investment management
Traditional asset management firms and their related products remain under pressure due largely to continued market volatility. Asset prices remain below their peaks; traditional investment funds continue to fight the view that they are becoming commoditised and regulatory change continues. Managers need to be clear about how they are tackling these and other emerging threats and opportunities.
The changing nature of the markets, regulatory scrutiny and increased transaction activity has led to the need for clearer and improved risk management and governance practices. Underlying this is the danger of severe reputational damage if significant events or activities are not dealt with appropriately.
Managers can use restructuring as a route to growth. Mergers, for example, create the scale needed to distribute low-cost products or fill in product ranges with high-alpha strategies. Alternatively, there are specific opportunities for growth in lower-risk products such as bond funds, exchange traded funds and some of the simpler higher-risk products. In Europe, the new UCITS IV directive offers some opportunities for greater efficiency
With bonus payments being scaled back, there is pressure to increase base salaries. HR professionals have to decide how to redefine the overall compensation offering, taking into account upwards pay pressure from employees and criticism from shareholders, regulators and the public over ‘excessive’ incentive outcomes.
Funds are being challenged to improve transparency around adviser fee and distribution arrangements as well as performance. Greater standardisation is needed to ensure trust is rebuilt in the marketplace.
Changes in regulation are affecting traditional investment managers, creating opportunities as well as challenges. Understanding emerging regulations across various borders can confer competitive advantage.
While traditional asset managers did not see a failure of operational risk management like alternative asset managers during the credit crisis, they should nonetheless review their operating models. Both regulators and tax authorities are increasing the burden of compliance.
Tax authorities across the globe are seeking investors’ identities (e.g. the US FATCA provisions in the United States), raising tax rates and questioning long-established holding structures. They are reinforcing all of this with increased audit activity. Managers must respond by improving their tax functions.