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Hello. I’m Tom Brown. I’m KPMG’s Global Head of Investment Management, based in London, UK. I’m going to share with you some of my perspectives on the current state of our industry and where I think it is heading.
Observations on state of the industry/ global trends
Although AUM and growth figures are encouraging, most investment managers are having their margins squeezed by pressure on both fees – driven downwards mainly by investors – and costs – driven upwards by regulatory change, particularly in the US and Europe.
Margin compression and the question of how to secure growth are items that remain high on the agenda of our global clients. The combination of these has led many firms to run strategic transformation programs, and we have worked on transformation programs with clients in New York and London. We are also seeing these kind of programs in some of the largest Brazilian asset managers, who have ambitious long-term growth plans.
For all the benefits that effective transformation will bring, I still expect to see a level of consolidation across the investment management industry. At a global level we have already seen a number of important transactions. Last year, the Swiss company Julius Bear acquired Bank of America-Merrill Lynch’s non-US business for in excess of US$800 million. And recently, the Spanish conglomerate Grupo Santander, sold a 50% stake of its asset management business, which has global assets under management of EUR152 billion, to US Private Equity firms Warburg Pincus and General Atlantic for just over EUR2 billion.
Our clients want to transform their businesses not only to achieve operational efficiencies and cost savings, but most importantly, to transform their business and operating models to be as responsive as possible to their clients’ evolving needs. Transformation is not about short term fixes, it’s about making a business sustainable over the long term.
Some of the things real business transformation programs set out to achieve are:
Risk management and governance
I’d also like to share with you some thoughts on various aspects of risk.
Prominent scandals such as the Madoff and Weavering cases have made investors increasingly mistrustful. In the last couple of years we have had conversations with some of the largest institutional investors in the world on this topic. We know through these conversations that investors are looking closely at investment managers’ risk management frameworks, their controls environment and their fund governance arrangements. In fact, investors want to know more about managers’ risk management framework, and get greater assurance from managers on the risk metrics used in investment monitoring and performance reporting. They also want greater transparency of the level of counterparty exposures. And they want more details on fund governance, including information on changes made to arrangements and even changes to investment staff.
A number of domestic and international standards are used by managers to prove that they stick to best practice. These include well known standards such as the former SAS70 (now known as ISAE 3402 and SSAE16), and GIPS, which has been widely adopted in developed markets for a few years and is now also being adopted in countries like Mexico. There are also conversations going on about this in China.Investors have certainly strengthened their process of due diligence on manager operations and they seek greater assurance before committing to invest with any manager.
In conclusion, I feel there has been an important inflection point in the industry over the last year. The mindset has switched from CEOs and Boards simply focusing on survival in the short term, to them looking at how to grow, and make their businesses sustainable over the next 10 to 20 years. In this new debate we are having conversations with clients about how megatrends such as demographics, technology and the environment will impact business in the future.
Global Head of Investment Management
KPMG in the UK
020 7694 2011
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