2014 Global Asset Management Survey It is always wise to look ahead, but difficult to look further than you can see. Winston Churchill A survey carried out globally by Linedata.
Introduction It is always wise to look ahead, but difficult to look further than you can see. Winston Churchill, former British Prime Minister, was attributed with this line in response to a parliamentary question. Decades later, these words still resonate for the asset management industry today. The regulatory storm that the asset management industry has weathered in recent years no longer appears as impossible as it may have one year ago. Firms must now plan for their future, but keep their focus on the here and now as they take their next steps. While deploying regulation is once again a key finding of Linedata s Global Asset Management Survey, investment performance is also a primary focus for asset managers. Firms are increasingly faced with the multiple challenges of identifying growth opportunities, maximizing their budgets, managing enterprise wide risk and building long term strategies. Firms who are able to focus on what they need to do today, while also looking to the future, will find themselves on course for success. In an environment where firms are seeking to deploy solutions to meet ever stringent regulations, they also need to be mindful of their investment performance, cutting costs and meeting investor and client demands. Notable trends include formalizing risk management practices, a shifting of technology priorities towards data management and compliance solutions and a desire for running front and back office processes in a cloud or hosted solution. Interestingly, there is still no clear consensus on the use of mobile apps and firms are still evenly split on their level of interest in the use of mobile apps in their business. Predictions for what to expect in 2014 include continued volatility in the markets, rising interest rates, slow to moderate market growth and further consolidation. 2
Methodology The survey was deployed during the fourth quarter of 2013. Respondents were surveyed during Linedata Exchange events in Paris, London and New York, as well as through an online survey. The respondents included asset managers, hedge funds, fund administrators and other stakeholders in the asset management industry including custodians, prime brokers, consultants and advisory firms. In terms of geography, 48% were North American based, 36% United Kingdom, 13% mainland Europe and 3% across the remainder of the globe. 3
1. MAIN CHALLENGES We first asked survey respondents What are the Main Challenges to your Firm Right Now? and, not surprisingly, 49% chose deploying regulation as their main challenge. As seen in Chart 1, while 47% claimed investment performance as a main priority, 33% feel cutting costs is their primary challenge. Other top priorities were investor/client demands with 28% and finding new investment opportunities with 20%. Growing their client base, increasing assets under management and automation were noted as other key challenges firms faced at this time. The lowest scoring category was investor/client confidence. In the past year, the industry has realized some clarity around regulators expectations regarding Basel III, Solvency II, Dodd-Frank, FATCA, AIFMD etc. During 2014, we expect to see firms continue to analyze and implement these rules and reforms as the key themes in the financial regulatory landscape. Asset managers continue to face a challenging environment with investors who are looking for higher and more consistent returns. Combined with pressure to cut costs, firms must look at their short term and long term objectives, further maintain controls and scrutinize their operations for efficiencies and effectiveness. Chart 1: Current Challenges Deploying Regulation 49% Investment Performance 47% Cutting Costs 33% Investor/Client Demands 28% Findding New Investment Opportunities 20% Trading Volatility 14% Other 14% Investor/Client Confidence 11% *Chart powered by Linedata Reporting 4
Chart 2: Main Challenges 2011-2013 60% 50% 2011 2012 2013 40% 30% 20% 10% 0% Investment Performance Regulation Finding New Investment Opportunities Investor/ Client Confidence Investor/ Client Demands Trading Cutting Costs Volatility/ Fragmentation Other *Chart powered by Linedata Reporting The trend of staying abreast of the many regulations and their deployment has consistently challenged buy side firms over the past three years as shown in Chart 2. Looking at the increased attention to investment performance, it s evident that firms are beginning to show signs of growth following multiple years of being in a holding pattern. As investors become savvier, the pursuit for investment performance has increasingly become a bigger concern for asset managers as they re-think their current investment strategies. In order to remain competitive, asset managers need to maintain their core businesses while also looking to develop new offerings. 5
2. FUTURE CHALLENGES When respondents were asked, What are the greatest challenges you face in the next 12 months? maintaining investment performance was the key concern, with 48% selecting this as a high priority. Chart 3 shows adapting to new regulatory regimes was the second most frequently selected concern at 45% and risk management also scored highly, with 34% selecting it as a key challenge for the next 12 months. Firms are placing an increasing focus on how they drive and maintain investment performance. As they do, they must also look at their overall business, how they construct portfolios and determine what new products they can offer. As regulatory bodies continue to place demands on the industry, firms will require compliance programs to be put in place and risk management practices to be formalized. While regulatory regime is a major concern, firms may begin to look at regulation as an opportunity and not as a burden or a threat. Chart 3: Future Challenges 48% 45% 34% 30% 25% 17% 11% 5% Maintaining Investment Performance Adapting to New Regulatory Regimes *Chart powered by Linedata Reporting Risk Management Market Conditions Finding New Investment Opportunities Investor/ Client Confidence Staff Retention Other 6
Chart 4: Future Challenges 2011-2013 50% 40% 2011 2012 2013 30% 20% 10% 0% Maintaining Investment Performance Adapting to New Regulatory Regimes *Chart powered by Linedata Reporting Risk Management Market Conditions Finding New Investment Opportunities Investor/ Client Confidence Staff Retention Other Though adapting to new regulatory regimes continues to be of great importance to buy side firms, there has been increased focus on maintaining investment performance as we look at the three year trend shown just above in Chart 4. The asset management industry has gone through tremendous upheaval driven by market changes, regulation and cost pressures. Investors are gaining confidence and financial markets are showing signs of improving. As firms look to the longer term, they are shifting focus back to their core business and identifying opportunities for growth. 7
3. IT PRIORITIES When asked to name the key IT priorities at present, data management systems came out on top. This is not surprising as firms need to integrate, cleanse, migrate and manage data across platforms to produce accurate, consistent information. Compliance solutions, improving/maintaining legacy systems and trading and other front office applications also ranked as top IT priorities. Compliance continues to be a major focus for investment firms and there is now a clearer sense of the time frames and deadline for many of the reforms. Firms will continue to invest in compliance systems in order to provide transparency and meet on-going regulatory requirements. Going forward firms will need to identify new growth opportunities and maximize the business value of IT budgets to ensure that there are increased operational efficiencies. Chart 5: Top IT Priorities 40% 30% 39% 38% 35% 34% 34% 31% 28% 20% 15% 10% 0% Data Management Compliance Solutions *Chart powered by Linedata Reporting Trading and Front Office Apps Improve/ Maintain Legacy Systems Reporting Risk Management Consolidation Outsourcing 8
4. SYSTEMS IMPORTANCE We asked our respondents the level of importance they placed on systems for various factors that influence their business. As shown in Chart 6, almost 50% cited risk management, while adapting to new regulatory regimes and maintaining investment performance closely followed. This reflects the earlier responses when respondents indicated those are the greatest challenges they are facing. Firms must extend their focus beyond portfolio compliance and develop a comprehensive risk management plan in order to better position themselves in the market. Risk management systems deliver value beyond just meeting regulatory or compliance requirements. As firms implement new investment strategies that are more diversified they need to raise efficiencies in their investment operations Chart 6: How important are your systems? 50% 40% 49% 44% 43% 42% 30% 25% 24% 20% 10% 0% Risk Management Adapting to New Regulation Maintaining Investment Performance Investor/ Client Confidence Finding New Investment Opportunities Market Conditions *Chart powered by Linedata Reporting 9
5. REGULATORY FOCUS Regulation continues to be a top priority for buy side firms. During 2013, firms acquired a clearer sense of what the regulations are; in 2014 they will take that knowledge and focus on implementing the many rules. While the rules are being interpreted and deployed, firms must still focus on their core business and their end investors. As the various regulations become mandatory, they will require a change in client workflows, while maintaining business as usual. There remains some confusion as to whose rules (US, Europe etc.) apply to which transactions. The lack of inter-operability of some of the rules will continue to have a significant impact on transaction volumes in certain investment vehicles. Chart 7: Which regulation do you consider to be biggest concerns? 50% 45% 40% 35% 34% 30% 26% 20% 22% 19% 10% 0% Dodd-Frank Act FACTA AIFMD EMIR MIFID KYC *Chart powered by Linedata Reporting 10
6. A PREDICTION FOR 2014 We asked our participants to name one prediction for 2014. This open ended question demonstrated continued volatility as their market prediction of the year this was the most predicted outcome for 2012 and 2013 as well. Beyond this, there were widely diverging predictions, including a return to normal, and an equal number of respondents predicting a bear market vs. a bull market. Others were not so certain and simply said that my prediction will be wrong and end of the world. Bear Market Regulations Interest Rates Return to Normal Bull Market Market Volatility 7. TO CLOUD OR NOT TO CLOUD When we asked what, if any, business processes firms are currently running or planning to run in the cloud or as a hosted solution, an overwhelming number said none. There was equal distribution among those who claimed they would run their front or back office processes in the cloud. All Not sure Back Email CRM Middle None Front 11
8. MOBILE APPS For the third year since Linedata introduced this Global Asset Management survey, there is still no consensus on the use of mobile apps to run their business. Firms were evenly split when asked if they would use mobile apps to run their business. When probed on specific uses for mobile apps within their organization, many firms indicated it would be most beneficial for client presentations and accessing client reports on demand. Security remains a main concern and skepticism is also holding firms back from using mobile apps. Chart 8: Would you use mobile apps to run your business? No, 49% *Chart powered by Linedata Reporting Yes, 51% 12
Conclusion While regulation continues to be a top priority for firms, the industry now has a much better understanding of what the regulations are and their attention is now on implementing what they know. After five years of uncertainty following the crisis, asset managers are now looking to the future and focusing on investing. With a much clearer approach to compliance, they can shift focus to how they can drive their growth going forward. Investment performance is an increasing focus and firms will be looking at their overall business to determine where opportunity lies. As they identify these new growth opportunities, IT budgets will be maximized in order to enable operational efficiencies. When firms look back to see what led to where they are now, they can determine what they must do that will position them for success today and plan well into the future. 13
LINEDATA SERVING THE INVESTMENT MANAGEMENT COMMUNITY Linedata is a global solutions provider dedicated to the Investment Management and Credit communities. For the investment management community we provide front, middle and back office solutions from trading through to fund, investor and shareholder accounting and transfer agency systems. All our investment management solutions are available either hosted or deployed to suit your requirements. Linedata provides access to over 400 broker destinations via the Linedata Lynx service, and over 40 broker algo destinations and dark pools via the Linedata Liquidity Alliance Program. All charts within this report were powered by Linedata Reporting, a robust reporting package seamlessly integrated with every component in Linedata s comprehensive solutions. Linedata Reporting, available through deployed installation or webbased Application Service Provider (ASP) or hosted models, makes it easy to create sophisticated reports for both internal and external reporting. To learn more on Linedata services and solutions please visit www.linedata.com or e-mail getinfo@linedata.com. 14
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