The financial crisis of 2008 and its aftermath of regulatory change may some day be regarded as the defining hallmark of this era for the financial services industry. Government directives are massively changing the playing field and a large range of new players are impacted by these rules. Consequently, financial institutions are rethinking their business strategies in order to find the right balance between compliance and the generation of predictable and uncorrelated returns.
The onslaught of regulations such as AIFMD, UCITS V, PRIPS, BEPS and MiFID II is disruptive for the asset management industry. Furthermore, compliance with stringent regulations does not come cheaply - it is not uncommon for bigger firms to spend significantly to satisfy the new requirements. We could soon begin to see investors shifting asset allocation in favour of less regulated and perhaps cheaper investment vehicles.
But there is a silver lining here for asset managers willing to think outside the box. With change there is also an opportunity for improvement. While the new regulations are burdensome, they also open a window of opportunity for those willing to seize it. This report highlights both the pitfalls and prospects resulting from the ongoing changes, which will affect everybody in the financial world at one point or another. Alternative asset managers who understand how to leverage this period of transition stand to capture a bigger share of the market and reap genuine benefits.
In an environment where regulations will drive the development of tailored solutions, and where reporting demands will increase the role of technology, successful alternative asset managers of the future will have to keep in mind the following three factors:
Geographical footprint: Managers who don't have the resources and the critical size to establish and promote their brand could very well take a backseat to those who do;
Investment footprint: The current landscape of asset management companies is evolving, offering a competitive advantage to large asset managers who offer a full range of products and specialised boutiques who have a defined expertise;
Distribution footprint: Institutional investor solutions can serve as a blueprint for retail market products.
Finally, asset managers will need to invest in data management capabilities. Institutional investors are subject to stricter regulatory reporting requirements and internal control standards. Reporting and data will become key differentiation factors reinforcing or, if not managed properly, weakening other key success factors of an asset manager.