Perspectives from Abroad

Asset managers from worldwide markets came together to share their diverse perspectives on global product trends, distribution, and regulatory issues during NICSA’s Strategic Leadership Forum this month. The unique opportunity helped NICSA members understand how to better meet global market needs.

Andrew Dougherty, Head of Asset Managers and Alternative Investors, Americas, BNP Paribas, moderated the discussion, which also featured industry leaders from ALFICiti, and Franklin Templeton.

“The macroeconomic environment for asset management is extremely healthy from a global perspective — we’re about to cross $100 trillion in terms of assets under management, yet the industry consistently faces fee compression, and in some respects, it’s actually accelerating,” Dougherty said. “Part of the reason for that acceleration is the active versus passive market.”

What asset managers have to do now, he said, is provide strong arguments around value for money, proving why investors should pay a premium for active management versus passive.

Global Distribution Trends

On the distribution side, Dougherty said many global markets are essentially owned by domestic banks and insurance companies, which creates a significant barrier to entry for nonindigenous asset managers — such as an asset manager from the U.S. trying to distribute product in Asia or Latin America.

“There are many hurdles that they need to overcome to break into those relationships and get their product to those investors,” he said. “The question is, how do asset managers with innovative products break through these barriers?”

Greg McGowan, Senior Advisor, Franklin Templeton, said his firm has been doing business in China for a long time, first investing in emerging markets funds, and then for the last 10 to 12 years through fund management companies in the country.

“In China itself, for those of you who are doing business there or want to, the personal side is most important, but after that, statistically, you have to go in with your eyes wide open,” McGowan said, explaining that the top 30 fund management companies in China control 79 percent of the assets under management in the Chinese marketplace.

“It’s a tremendously competitive market, and personal relationships are old in China, going back millennia,” he said. “As a foreigner, you’re not going to go there and develop a one or three-year plan: You’re talking about 10, 15, or 20-year plans.”

Jervis Smith, Managing Director, Head of Investor Services, Luxembourg, Citi, said that when we talk about mutual recognition, we tend to forget about the mutual bid.

“So if you’re going to allow Luxembourg funds to be distributed into China, you have to allow Chinese funds to be distributed into Europe,” Smith said. “And that’s probably something that most of the European regulators will be quite cautious about.”

Regulatory Considerations

From a global regulatory perspective, Dougherty said changes are ever-present. “Regulators these days seem to want to believe they know what is best for the end consumer, but that’s rarely the case,” he said. “How do asset managers in that context deal with regulators in order to demonstrate valuable and innovative products for the end investor?”

Camille Thomes, Director General, ALFI, touched on regulatory concerns within the UK. “Obviously, Brexit has been the topic of the last few years in the EU, and there’s a lot of uncertainty triggered by political debate,” he said. “From a business perspective, I think the large majority of players have executed their contingency plans for those who are active out of London. “

Some have set up shop in EU countries to continue to service those clients. There have also been measures taken both by the UK and the European Commission to mitigate the risks inherent in a hard Brexit scenario, which seems increasingly likely.

Thomes said the European Commission’s sustainable finance proposal will also have an impact on the industry in upcoming years. “The European Commission has come up with a very ambitious program to try to reorient capital flows into more sustainable activities and investments in line with the Paris Agreement and also some of the UN’s sustainability goals,” Thomes said.

Other areas of regulatory interest, Thomes said, include the application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS) and the Alternative Investment Fund Managers Directive (AIFMD), as well as the impact of cost on the performance of retail products.

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