Challenges and opportunities in today’s investment environment

Stephanie Miller

Are you prepared to take on the many new opportunities and challenges faced by managers in today’s industry? A panel of experts recently discussed the current asset management environment at “The View From Within”, an industry event hosted by SS&C.

PricewaterhouseCoopers (PwC) estimates that global funds under management will reach $101.7 trillion in 2020, up from $69.3 trillion in 2012. Panellists predict that assets are actually likely to surpass $101.7 trillion as the mass affluent invest more.  While reports of such optimistic inflows is excellent news for asset managers, it cannot distract from the fundamental regulatory challenges facing the industry.

Margins are being squeezed by new regulations (e.g. Alternative Investment Fund Managers Directive, European Market Infrastructure Regulation, the Markets in Financial Instruments Directive II [MiFID II] and Dodd Frank Reporting). Incoming regulations are going to have a significant impact on the asset management community. MiFID II introduces a host of new requirements for firms including transaction reporting, pre-and post-trade transparency, and restrictions on purchasing sell-side research. This will inevitably eat into revenues. 

A further risk – perhaps within the next five years – will be Brexit, which in a worst case scenario could result in significant regulatory arbitrage between the UK and EU forcing firms to comply with two different sets of regulations. This will add costs and incur additional workloads for organisations already dealing with growing overheads.

Compliance costs have risen in light of these new regulations, and many feel that for a hedge fund strategy – for example - to be viable, it needs to run between $100 million and $150 million. One panel member says their research indicates an AuM of around $83 million would enable a hedge fund to break even. So how can asset managers more broadly best deal with these challenges given their budgetary constraints?

Approaching regulation in silos leads to complexity and duplication at organisations. Looking at rules where there are overlapping (or identical) data requirements, and deploying a holistic method of gathering and aggregating the relevant information is key to mitigating these problems in a cost-effective manner. Outsourcing to service providers is another way by which efficiencies can be attained at asset managers in such an environment. Many outsourced providers are investing heavily in technology to address clients’ regulatory needs, and this can help managers refocus their emphasis on growing their assets.

Moving forward, panellists acknowledged the asset management industry needed to articulate itself better in the public domain if it is to convince regulators and government bodies that it is a force for good in capital markets. The panellists acknowledged that UK fund industry groups had been effective in promoting the benefits of asset management, but more work needed to be done. This may be through showcasing the industry’s altruistic work or educating the broader public and politicians about their role in markets. Driving home this positive message could help ensure future rules and regulations are less prescriptive or onerous for the industry and their investors.

As fund managers and investors are increasingly focused on regulatory, due diligence and other operational issues, SS&C GlobeOp, with its combination of services and technology products, is uniquely placed to meet these requirements. To learn more, please contact solution@sscinc.com.