the effects of 'one-size-fits-all' regulation on asset managers
DESCRIPTION
We asked over 200 boutique asset management executives: What's the single thing that could make or break your firm in the next year? The answers to this and other questions represent unique perspectives and expertise from 38 countries. The survey results have been analysed by Tabb Group and show the devastating effect of the mounting regulatory burden on specialist and regional investment managers.TRANSCRIPT
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REGULATION NOT MEASURING UP?
© SunGard Financial Systems
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BACKGROUND TO RESEARCH
200+ PARTICIPANTS / 38 COUNTRIES
U.S.
35%
Europe
33%
AsiaPacific
15%
Latin &S.America
6%
Middle East& Africa
5%
Other
2%Canada
4%
Analysed by TABB Group
GLOBAL REACHBoutique Participants
1 64
We asked: What's the single thing that could make or break your firm?
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DEFINING BOUTIQUE
THREE TYPES OF BOUTIQUES:
Founded by fund manager leaving a larger firm, often taking a client book and some trusted colleagues with him. Priorities are establishing a marketing presence, setting up basic infrastructure, and keeping/ reeling in the first ten investors, in addition to investing own money
START UP
Support staff are in place, assets are growing, firm has established a trackrecord and credibility. Focus is on building on successes, upgrading infrastructure to deal with increased demand
ESTABLISHED
The boutique either grows organically and may slowly become more bureaucratic with larger staff and slower decision-making, OR get acquired by a larger firm and be run autonomously as a specialist investment unit. This also includes regional subsidiaries of larger houses
GET BIGOR GET BOUGHT
FIVE DEFINING ATTRIBUTES:
ENTREPRENEURIAL NICHE SMALL STAFF STAFF CO-INVESTFOCUS ON CORECOMPETENCIES
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KEY FINDINGS
(1) REGULATORY REACTION
A myriad of regulation affects different boutiques around the world. Top of the list for the next year: AIFMD, followed by Dodd Frank, local regulations, UCITS, MiFID, FATCA, Anti-Money Laundering, EMIR and Solvency II
(2) COST OF COMPLIANCE
Boutiques are investing, and dollars arebeing spent on documentation (#1), IT (#2) and people (#3)
(3) REGULATORY SIDE EFFECTSThe effects of regulation on boutiques are increased cost (#1) and the need for better IT systems and documentation (#2) to satisfy institutional investors
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KEY FINDINGS
(4) BARRIER TO ENTRYInstitutionalization – the growing list of things asset managers need to do to satisfy regulation and due diligence demands – is the main barrier to entry and success for new asset managers
(5) TIME TO TAKE ACTIONIncreasing expenses related to regulatory compliance are the one thing that boutiques think could make or break them over the next year. They know they need to invest now, but be smart about it
>>>SIZE MATTERSScale is the feature that boutiques know they lack, and technology and better operational efficiency are the keys to overcoming this disadvantage. 9 out of 10 respondents thinks “Technology can help my business meet growth challenges and satisfy increased demands”
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HOW BUSINESS IS CHANGING
INSTITUTIONALIZATIONThe biggest barrier to entry among the participants in our 2013 survey is the “institutionalization” of the industry that leads to higher due diligence and compliance costs.
Similarly, “the ability to show institutional grade control systems” has also become a bigger component indeterring newcomers.
2012 RESULTS 2013 RESULTS
Sources: TABB Group, SunGard
9%
18%
26%
37%
45%
47%
52%Cost of operations
Regulation
Institutionalization – burden of due diligence and compliance
Ability to show institutional grade control systems
IT Investment – setup and development
Other Option
Staffing constraints – e.g.inability to offer managed accounts
6%
7%
11%
20%
22%
27%
29%
43%
44%
44%
51%Institutionalization – burden of due diligence and compliance
Cost of operations
Investor focus on historic returns
Ability to show institutional grade control systemsLocal or regional regulation related to administration, registration, licenses
IT investment – setup and development
Local or regional regulation related to distribution and asset raisingFragmented global regulation making it hard to raise assets globally
Other Option
Industry model – lack of front end fees
Staffing constraints – e.g. inability to offer managed accounts
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PAYING THE PRICE OF REGULATION
WHAT DO YOU SEE AS THE MAIN FACTORS THAT COULD ‘MAKE OR BREAK’ BOUTIQUE FIRMS IN THE NEXT 12 MONTHS?
7%
9%
11%
36%
46%
53%Increasing expenses relatedto regulatory compliance
Key person risk – founderleaving
Rising cost-to-income ratios
Economic slowdown in Asia esp. China
Sovereign debt crisis
Other Option
THE MOST PROBLEMATIC ISSUE FACING BOUTIQUE MANAGERSIN THE NEXT 12 MONTHS IS THE
INCREASING
EXPENSE OF REGULATORY COMPLIANCEIT IS NO SURPRISE THAT COSTS ARE GOING UP AS NEW REGULATIONS ARE IMPLEMENTED AND ENFORCEMENT AGENCIES INCREASE THE AMOUNT OF INSPECTIONS AND REQUESTSFOR INFORMATION
Source: TABB Group, SunGard
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WITH THE BENEFIT OF HINDSIGHT…
SCENARIOYOU TRAVEL BACK IN TIME to the year your investment boutique was first launched. Which advice would you give/what would you do differently?
???
Source: TABB Group
WITH THE BENEFIT OF HINDSIGHT…
Think big from the very beginning in terms of process/IT/Regulations need, people, revenues& associated costs.
“
“Participant from Georgia, USA
Source: TABB Group
WITH THE BENEFIT OF HINDSIGHT…
Better documentation, improved capture of fund activities and history, better equipped to navigate regulatory requirements.
“
“Participant from Singapore
Source: TABB Group
WITH THE BENEFIT OF HINDSIGHT…
Set up infrastructure& design before launch.“ “
Participant from the UK
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WHAT ARE THE TOP THREE DISADVANTAGES FACED BY BOUTIQUES?
6%
12%
13%
19%
23%
31%
47%
61%
65%Lack of economies of scale
Restricted access to distribution channels
Administration burden
Limited IT budget
Lack of industry organization/industry representation
Fragmented front to back systems(lack of integration)
No political influence
Anachronistic processes & systems
Other Option
Source: TABB Group
WITH THE BENEFIT OF HINDSIGHT…
Advice: Outsourcing is definitely the way to go in order to focus on core competencies and provide a scalable platform for significant growth.Do Differently: Don't be afraid to overstaff (administratively)in the beginning.
““
Participant from New Jersey, USA
Source: TABB Group
WITH THE BENEFIT OF HINDSIGHT…
Focus on doing what you do best. Build distribution. Be patient.“ “
Participant from South Africa
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THE ROLE OF TECHNOLOGY
ASSET ARENA 360 HELPS BOUTIQUES
RAISE ASSETS
AND FOCUS ON CORE COMPETENCIESSO THEY CAN
DELIVERPERFORMANCE
Technology can help my business meet growth challenges and satisfy increased demands
Strongly Agree 38%Agree 54%Undecided 7%Disagree 1%Strongly Disagree 0%
Boutiques should focus on core competencies and outsource the rest
Strongly Agree 38%Agree 40%Undecided 14%Disagree 7%Strongly Disagree 1%
Straight Through Processing (STP)is the key to achievingoperational efficiency
Strongly Agree 23%Agree 34%Undecided 34%Disagree 7%Strongly Disagree 2%
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WITH THE BENEFIT OF HINDSIGHT…
Add the software and technology, so that a smaller number of employees can bemore efficient.
“
“Participant from Virginia, USA
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USUAL BOUTIQUE BUSINESS
SPREADSHEETS RULE
COMPLIANCE
PERFORMANCE OPERATIONS
REPORTING RISK
MANAGER SALES
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RESPONDING TO THEINSTITUTIONALIZATION OF THE INDUSTRYINSTITUTIONAL-GRADE CONTROL SYSTEMS
PERFORMANCE OPERATIONS
REPORTING RISK
MANAGER SALES
COMPLIANCE
ANALYZE
COMPARE
EXECUTECONTROL
COMPUTE
MEASURE
SIMULATE
REPORT
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JOIN THE ASSET RAISING AUTOBAHN
IF YOUR INVESTMENT BOUTIQUE WERE A CAR, WHICH ONE WOULD IT BE?
Sources: TABB Group, SunGard
HOW CAN BOUTIQUES ACHIEVE VORSPRUNG DURCH TECHNIK?
CAR REPRESENTATION
Mercedes-Benz Solid track record
Audi Mid-market consistency supportedby quality engineering
Volvo Stable returns
Ferrari High performance in a well-defined niche
Jeep Grand Cherokee
Provides protection and performancein tough markets
Toyota Prius Focus on green credentials and sustainability
Rolls-Royce Old school asset manager for old money
Honda Good value for a standard product
Mercedes-Benz
22%
Audi
22%Volvo
17%
Ferrari
16%
Jeep Grand Cherokee
10%
Toyota Prius
4%
Honda
1%Other Option
4%
Rolls-Royce
3%
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ASSET ARENA 360 ADVANTAGE
INVESTMENT TECHNOLOGY FOR BOUTIQUE ASSET MANAGERS
QUALITY ENGINEERING
FOR DEMANDINGASSET MANAGERS
SMOOTH INVESTMENT WORKFLOWS
EFFICIENTPROCESSES
ROBUST INFRASTRUCTURE
INTEGRATED COMPLIANCE AND
RISK MANAGEMENT
THANK YOU. QUESTIONS?Contact [email protected]
ASSET ARENA 360
RAISE ASSETS
FOCUS ON YOUR CORE COMPETENCIES
DELIVER PERFORMANCE
DOWNLOAD THE FULL REPORT AT WWW.SUNGARD.COM/BAMSTUDY