Guest Blog | Asset Managment Industry Trends

This blog post is written by a guest contributor for the NICSA News blog.

The rise of global ‘Megatrends’

GuestBlogPicI have been fortunate to work with great clients through interesting times in the Asset Management industry over the last 20 plus years; however, the change we are experiencing in the most recent of those years has been at a rate I don’t think anyone could have anticipated. And I don’t anticipate it is going to slow down. Not only is the global regulatory landscape evolving at a pace which shows no deceleration, but much bigger global trends are well underway. These developments have direct impact on Asset Managers and their service providers and at PwC we have spent considerable effort exploring this impact for both the specific sector-level changes and the relevant of “megatrends”. For some changes, a “new normal” can be felt more so in markets outside of the United States, however in the increasingly global world in which we operate, I thought each warranted mentioning here at least at a high level.

Product offerings

While the topic of product development and management is hardly new, the conversation pieces of today are a far cry from those that took up agenda space with my clients five or even two years ago. One thing we are seeing, particularly in Europe, is the Asset management is moving to ‘center-stage’. There is a clear concentration on alignment of interests for managers and investors, as well as a marked restoration of trust in capital markets. Asset managers and similar entities are being seen filling the gap in non-bank finance (e.g. money market funds and lending products). For these new market entrants (or, in many cases, large market players with a shiny new line-up) time to market is key – which creates roles for many kinds of support players as entities stand up new products.

Serving clients in both the registered and unregistered space, it has been fascinating to watch the fluctuations in asset flows between these sub-sectors over the years. While flows continue to be measured with much more sophistication and specificity (for example, how much money is coming into active fixed income ETFs on a given day is a readily available statistic), what is clear is that Alternatives are becoming more mainstream. We see a more than subtle creep of alternatives into the daily liquidity arena (often now referred to as “the retailization of alternatives”). Of course, in reality what this means is that there is a refined (expanded) definition of alternative investments. Such daily liquidity requires expanded distribution and all that goes with it. Despite my active fixed income example above, a trend we absolutely see and hear from our clients is that passive is becoming core, and will continue to do so.

Regulation

I was trying to see how long I could write before going full-on into regulation, but talking of distribution reminded me of a couple of important items (I promise to keep this brief). From the work PwC has done in this space, we believe that distribution will be redrawn. It is clear that by-geography platforms dominate sales (be that regional or global), and this is because of the countless territory-specific rules and requirements. For one, the detailed KYC/AML policies organizations must maintain to operate in so many jurisdictions are vast and complex; overlay on that the (similar yet different) FATCA reporting needed and it’s a lot to keep up with. Of course, new technology assists in direct distribution and it will be interesting to see how the intermediary market continues to shift.

If you operate in EMEA, you will likely be already familiar with Retail Distribution Review (“RDR”) which has overhauled the use of trailing versus upfront commissions on investment vehicles. Despite spirited response to these proposed changes in many more countries, we are seeing a clear movement towards RDR going global. This is being driven by ever-loudening investor demand for transparency over fees.

Operating models and the transformational impact of global trends

Despite the fact that we are effectively coming out of a “low deal” period, what is also emerging is a new breed of global “mega-manager”, with the large, well, simply getting larger. This is attributable to many aspects, from organic growth, to market uptick, to true opportunistic acquisitions. What is interesting to observe, however is how the continued margin compression is a true driver of structural and technological change. The cultivation of innovation is a complex topic, one on which I, like most CPAs, don’t profess to be an expert. What I can say we are seeing, however, is the evolution of product development, combined with major demographic shifts and significant technological advances, has effectively created growth, as opposed to AUM simply changing homes. With the accessibility of so much data and a global generation of digital natives equipped to use this for financial decision-making, at a much younger age than their parents, I am excited to see where we are headed on this front. As you can see from the graphic below, which is from PwC’s 2014 CEO survey, US respondents are very focused on big issues and opportunities far beyond the nuances of regulations and the like, with which they are also dealing.

Looking for further information?

Recognizing that this is a lot of information in a relatively bite-sized format, I would be very interested in hearing your views and experiences on any of the points above, and welcome the opportunity to discuss further at a NICSA event, or just drop me a note and we can connect directly.

Also, I encourage you to check out PwC’s Asset Management 2020 publication at http://www.pwc.com/us/en/asset-management/investment-management/asset-management-2020.jhtml and our 2014 CEO Survey which you can access at http://www.pwc.com/us/en/ceo-survey-us/index.jhtml

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Todd Bari is a partner in PwC’s Boston office, where he has served clients in the Financial Services industry for over 20 years. With a focus on investment funds and their service providers, Todd provides audit and other assurance services, including controls attestations, to global organizations. Additionally, he holds leadership roles related to various aspects of PwC’s human capital strategy and regularly develops and delivers technical trainings for the firm. Todd is a graduate from the University of Massachusetts at Amherst and is a licensed Certified Public Accountant. Todd and his wife live, with their three sons and four dogs in Douglas, MA.

 



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