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December 7, 2010updated 13 Apr 2017 8:51am

Big challenges await UK fund managers in 2011

Among the most significant findings of SIGs survey are potential changes to fee structures with the majority of the industry (64%) expecting to see the use of performance fees increase further over the next 12 months

By LII editorial

Next year could be a “defining year” for the global asset management industry, believes fund management company Skandia Investment Group (SIG), a unit of UK life insurer Old Mutual. SIG draws its conclusion from a survey 40 UK fund management groups with combined assets under management of more than $2trn.

Among the most significant findings of SIG’s survey are potential changes to fee structures with the majority of the industry (64%) expecting to see the use of performance fees increase further over the next 12 months.

 

Increasing pressure

In addition, the same proportion of respondents indicated 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 exchange traded funds (ETF).

“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,” said SIG CEO Nils Bolmstrand.

“The increased availability of low-cost sources of beta; 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.”

Asset managers can also expect to come under more regulatory pressure.

“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,” noted SIG.

SIG also stressed that 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.

In this regard, 62% of respondents expect the level of demand for risk targeted funds to increase in 2011 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 investing would be seen in the retail market.

Of particular significance, SIG’s survey also revealed the use of investment product distribution platforms by asset managers “is set to surge over the next three years”.

The findings revealed many asset managers already see platforms as an important distribution channel, with 71% of those surveyed transacting at least a quarter of their retail business through a platform and 43% transacting over half.

Notably, the vast majority of respondents (79%) believe their business will see a further increase in the use of platforms over the coming years.

SIG also highlighted that consolidation remains at the forefront of many asset management companies’ minds, with 76% of respondents expecting to see increasing consolidation over the coming year.

 

Positive outlook

Of this number, more than half (55%) believe it will be led by large asset management companies looking for cost synergies through the purchase of their competitors or boutiques. Because of consolidation activity, of those surveyed, 53% expect to see a reduction in the number of boutiques (asset sector specialists) over the coming year.

Summing up the survey results, 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.

“The over-riding 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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