2011 to be pivotal year for asset management industry, says Skandia Investment Group research

2011 could be a defining year for the global asset management industry, according to research by Skandia Investment Group (SIG), a leading provider of research-led investment solutions.

Now in its second year, the study – which questions 40 fund management groups with combined assets under management of over $2 trillion – reveals that while under greater pressure and scrutiny from regulators, investors and their peers, asset managers see 2011 as being packed with opportunity for those able to position themselves correctly.

Key findings from the report – The Future of the Global Fund Management Industry – include:

Greater burden from regulators

The burden of regulatory change shows no signs of diminishing, with 85% of respondents expecting to spend more time managing regulatory issues over the next 12 months. While just under half (46%) of those surveyed believe the Retail Distribution Review will have no impact on the way they do business in the UK, the vast majority (76%) believe the proposed changes to UCITS IV represent an opportunity they are keen to make the most of.

Fee structures to evolve

The research clearly shows the majority of the industry (64%) expects to see the use of performance fees increase further over the next 12 months, while at the same time indicating that in some areas of the market annual management charges will be under increasing pressure as a direct result of the rise of passive products including ETFs.

Rise of risk targeted and multi-manager solutions

A clear and likely permanent shift would appear to be in the area of risk targeted funds, with investors looking for more certainty in terms of risk rather than returns. 62% expect the level of demand for risk targeted funds to increase next year while none of those questioned thought demand would decrease. A similar trend was seen with multi-manager investing, where only 12% felt the growth seen in the last few years would go down. 62% felt the fastest growth for multi-manager would be seen in the retail market.

Use of platforms set to surge

The survey also revealed that the use of platforms by asset managers is set to surge over the next three years. The findings reveal that while many asset managers already see platforms as an important distribution channel – 71% of those surveyed transact at least 25% of their retail business via a platform with 43% transacting over 50% – the vast majority (79%) believe their business will see a further increase in their use over the coming years.

Consolidation inevitable

Consolidation remains at the forefront of many firms’ minds, with 76% expecting to see increasing consolidation over the coming year. Of this number, more than half (55%) believe it will be led by large firms looking for cost synergies through the purchase of their competitors or boutiques.  Of those surveyed, 53% expect to see fewer boutiques over the coming year.

Opportunities for growth

Despite the various headwinds, the fund management industry remains positive about the outlook for growth. The results highlighted a number of factors that point to industry expansion, with nearly half of respondents (45%) expecting to expand into new markets in 2011 – with Europe and Asia presenting the best opportunities – and more than 60% saying they would be looking to take on new investment and distribution staff.

Commenting on the report, Skandia Investment Group Chief Executive Officer Nils Bolmstrand said:

“One of the most gratifying aspects of this year’s survey is just how positive the fund management industry actually is despite the very obvious headwinds. Most firms we questioned are upbeat about the state of the industry and anticipate growth in assets under management in 2011 as they look to expand into new markets.

“Drivers in the marketplace include UCITS IV which is seen as an opportunity for the industry. In part this is seen to be driven by the inclusion of alternatives strategies within UCITS. The debate that has been raging within the industry concerning the potential damage to the UCITS ‘brand’ by the inclusion of hedge fund-type strategies is broadly dismissed as most believe alternatives can be incorporated within the UCITS regime without damaging its reputation.

“But great challenges remain for the industry. Further consolidation – driven by large firms looking for cost synergies – is expected to be a key feature of 2011 and will result in a reduction in the number of boutiques in operation. Fees are also likely to become more competitive in certain areas of the market as firms react to the continued rise in popularity of passive products such as ETFs. Our view is that the increased availability of low cost sources of beta, the increased client demand for absolute returns after recent market volatility, and the rarity of genuine alpha is likely to drive the polarisation in fees demonstrated by the asset managers surveyed.

“In addition, the burden of regulatory change shows no signs of diminishing across the world, with 85% of firms expecting to be spending more time managing regulatory issues in 2011.

“The overriding feeling from the survey is that 2011 could be an extremely important year for the asset management industry with firms positioning themselves to benefit from an unfamiliar future.”

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2011 to be pivotal year for asset management industry, says Skandia Investment Group research

2011 could be a defining year for the global asset management industry, according to research by Skandia Investment Group (SIG), a leading provider of research-led investment solutions.

Now in its second year, the study – which questions 40 fund management groups with combined assets under management of over $2 trillion – reveals that while under greater pressure and scrutiny from regulators, investors and their peers, asset managers see 2011 as being packed with opportunity for those able to position themselves correctly.

Key findings from the report – The Future of the Global Fund Management Industry – include:

Greater burden from regulators

The burden of regulatory change shows no signs of diminishing, with 85% of respondents expecting to spend more time managing regulatory issues over the next 12 months. While just under half (46%) of those surveyed believe the Retail Distribution Review will have no impact on the way they do business in the UK, the vast majority (76%) believe the proposed changes to UCITS IV represent an opportunity they are keen to make the most of.

Fee structures to evolve

The research clearly shows the majority of the industry (64%) expects to see the use of performance fees increase further over the next 12 months, while at the same time indicating that in some areas of the market annual management charges will be under increasing pressure as a direct result of the rise of passive products including ETFs.

Rise of risk targeted and multi-manager solutions

A clear and likely permanent shift would appear to be in the area of risk targeted funds, with investors looking for more certainty in terms of risk rather than returns. 62% expect the level of demand for risk targeted funds to increase next year while none of those questioned thought demand would decrease. A similar trend was seen with multi-manager investing, where only 12% felt the growth seen in the last few years would go down. 62% felt the fastest growth for multi-manager would be seen in the retail market.

Use of platforms set to surge

The survey also revealed that the use of platforms by asset managers is set to surge over the next three years. The findings reveal that while many asset managers already see platforms as an important distribution channel – 71% of those surveyed transact at least 25% of their retail business via a platform with 43% transacting over 50% – the vast majority (79%) believe their business will see a further increase in their use over the coming years.

Consolidation inevitable

Consolidation remains at the forefront of many firms’ minds, with 76% expecting to see increasing consolidation over the coming year. Of this number, more than half (55%) believe it will be led by large firms looking for cost synergies through the purchase of their competitors or boutiques.  Of those surveyed, 53% expect to see fewer boutiques over the coming year.

Opportunities for growth

Despite the various headwinds, the fund management industry remains positive about the outlook for growth. The results highlighted a number of factors that point to industry expansion, with nearly half of respondents (45%) expecting to expand into new markets in 2011 – with Europe and Asia presenting the best opportunities – and more than 60% saying they would be looking to take on new investment and distribution staff.

Commenting on the report, Skandia Investment Group Chief Executive Officer Nils Bolmstrand said:

“One of the most gratifying aspects of this year’s survey is just how positive the fund management industry actually is despite the very obvious headwinds. Most firms we questioned are upbeat about the state of the industry and anticipate growth in assets under management in 2011 as they look to expand into new markets.

“Drivers in the marketplace include UCITS IV which is seen as an opportunity for the industry. In part this is seen to be driven by the inclusion of alternatives strategies within UCITS. The debate that has been raging within the industry concerning the potential damage to the UCITS ‘brand’ by the inclusion of hedge fund-type strategies is broadly dismissed as most believe alternatives can be incorporated within the UCITS regime without damaging its reputation.

“But great challenges remain for the industry. Further consolidation – driven by large firms looking for cost synergies – is expected to be a key feature of 2011 and will result in a reduction in the number of boutiques in operation. Fees are also likely to become more competitive in certain areas of the market as firms react to the continued rise in popularity of passive products such as ETFs. Our view is that the increased availability of low cost sources of beta, the increased client demand for absolute returns after recent market volatility, and the rarity of genuine alpha is likely to drive the polarisation in fees demonstrated by the asset managers surveyed.

“In addition, the burden of regulatory change shows no signs of diminishing across the world, with 85% of firms expecting to be spending more time managing regulatory issues in 2011.

“The overriding feeling from the survey is that 2011 could be an extremely important year for the asset management industry with firms positioning themselves to benefit from an unfamiliar future.”

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