How
asset managers
can stay a step
ahead of regulators
Amin Rajan
Email: [email protected]
In the race to the bottom of client esteem, the winner is….
Source: PriceWaterhouseCoopers 2014
2
Problem 1: With the industrialisation of asset management,
investing has turned into a pseudo science
Market Benchmarks
•
•
•
•
•
A pseudo strategy
Arbitrary goals
Short-term horizon
Beat-the-market mentality
Herding
Disintermediation
Benchmarks
Disintermediation
• Agency-principal problem
• Arbitrary pigeon-holing of
asset managers
• Asymmetric incentives
• Implementation leakage
Fads
Fads
• Constant search for new
mousetraps
• Over-reliance on financial
engineering
• Investing by slogans
© CREATE-Research March 2015, All rights reserved
“Before the crisis,
we were as far
away from our
clients as the
man on the moon.”
A US Manager
3
Problem 2: Features of investment products that
inadvertently give rise to client dissatisfaction
• No predictable outcomes
• No replicable outcomes
• No definable shelf life
• Can’t be pre-tested in a lab
• No fit-for-purpose certificate
“Client expectations and market environment are everything.”
A UK Asset Manager
Source: Upping The Innovation Game In A Winner Takes All World, CREATE-Research 2015, All rights reserved
Solution 1: Run the asset business like a normal business
Investment
capabilities
Client
proximity
• Know the return drivers and their
vulnerability to untoward events
• Move towards a global standards in
client service
• Exploit correlations and risk premia at
different market phases
• Segment clients and have a clear service
proposition for each segment
• Spot value opportunities and value traps
arising from central bank action
• Do regular pulse surveys and achieve a
step improvement in client engagement
• Create client protection panels to
champion client interests
Interest
alignment
• Use trained intuition as much as MTM –
models, technology and math
• Share pain and gain with clients via a
value-for-money fee structure
• Have meritocratic incentives for
investment professionals
• Avoid me-too products and only provide
ones that are fit-for-purpose
• Develop common investment beliefs and
time horizons, and manage expectations
on what can and can’t be delivered
Source: Principal Global Investors / CREATE-Research 2013 Survey
“Is this the magic
moment to
remake
our business?”
A US Asset Manager
Solution 2: Institutional investors are upping their game in order to
minimise the implementation leakage
They’re developing…
And minimising…
• Strong beliefs that guide their
investment choices
• Portfolio drift to reduce
unintended exposures
• A disciplined approach to
buying and selling
• Fat-tail events to avoid
sequence of returns risk
• Governance to secure early
mover advantage
• Fees, charges & commissions
to boost net returns
• Cost effective investment
vehicles
• Opportunity cost of trading to
minimise hidden costs
• Better engagement with their
asset managers
• Herd instinct to prevent buying
on the dips
Source: Amundi Asset Management / CREATE-Research 2014 Survey
6
Solution 3: Via enhanced transparency, Internet technology may
well promote trust at the mass customised end
Hybrid channels for
specialised strategies
Bespoke
solutions
Alpha
funds
Illiquid
funds
Multi-asset class
funds
Internet for core
strategies
Indexed funds;
money market funds
Source: Why the internet titans will not conquer asset management. CREATE-Research 2015, All rights reserved
Mass
customised
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