how asset managers can stay a step ahead of regulators email: [email protected] amin...
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In the race to the bottom of client esteem, the winner is….
2Source: PriceWaterhouseCoopers 2014
Problem 1: With the industrialisation of asset management, investing has turned into a pseudo science
© CREATE-Research March 2015, All rights reserved 3
Disintermediation• Agency-principal problem• Arbitrary pigeon-holing of
asset managers• Asymmetric incentives• Implementation leakage
Fads• Constant search for new
mousetraps• Over-reliance on financial
engineering• Investing by slogans
Market Benchmarks• A pseudo strategy• Arbitrary goals• Short-term horizon• Beat-the-market mentality• Herding
Benchmarks Disintermediation
Fads
“Before the crisis, we were as far away from our clients as the man on the moon.” A US Manager
Problem 2: Features of investment products that inadvertently give rise to client dissatisfaction
• No predictable outcomes
• No replicable outcomes
• No definable shelf life
• Can’t be pre-tested in a lab
• No fit-for-purpose certificate
“Client expectations and market environment are everything.”A UK Asset Manager
Source: Upping The Innovation Game In A Winner Takes All World, CREATE-Research 2015, All rights reserved
Solution 1: Run the asset business like a normal business
• Share pain and gain with clients via a value-for-money fee structure
• Have meritocratic incentives for investment professionals
• Avoid me-too products and only provide ones that are fit-for-purpose
• Develop common investment beliefs and time horizons, and manage expectations on what can and can’t be delivered
Interest alignment
• Know the return drivers and their vulnerability to untoward events
• Exploit correlations and risk premia at different market phases
• Spot value opportunities and value traps arising from central bank action
• Use trained intuition as much as MTM – models, technology and math
Investment capabilities
• Move towards a global standards in client service
• Segment clients and have a clear service proposition for each segment
• Do regular pulse surveys and achieve a step improvement in client engagement
• Create client protection panels to champion client interests
Client proximity
Source: Principal Global Investors / CREATE-Research 2013 Survey
“Is this the magic moment to remake our business?” A US Asset Manager
Solution 2: Institutional investors are upping their game in order to minimise the implementation leakage
They’re developing…• Strong beliefs that guide their
investment choices
• A disciplined approach to buying and selling
• Governance to secure early mover advantage
• Cost effective investment vehicles
• Better engagement with their asset managers
And minimising…• Portfolio drift to reduce
unintended exposures
• Fat-tail events to avoid sequence of returns risk
• Fees, charges & commissions to boost net returns
• Opportunity cost of trading to minimise hidden costs
• Herd instinct to prevent buying on the dips
6Source: Amundi Asset Management / CREATE-Research 2014 Survey
Solution 3: Via enhanced transparency, Internet technology may well promote trust at the mass customised end
Hybrid channels for specialised strategies
Internet for core strategies
Bespoke solutions
Mass customised
7Source: Why the internet titans will not conquer asset management. CREATE-Research 2015, All rights reserved