Performance Magazine - Issue 19
Asset Management - January 2016
The financial services sector in Europe is presently facing a number of challenges. On the one hand, current ECB policies are causing a flood of liquidity on the market, as well as historically low interest rates, combined with the associated downward pressure on asset managers’ margins. Moreover, regulatory demands on the asset management industry are increasing.
On the other hand, the asset management industry is facing the immense challenge of digitalization, with its twin consequences of information overload in terms of speed and volume, and vastly increased numbers of market participants.
Furthermore, the technology itself, the new market participants and the general financial services framework all call existing organizational structures into question; this even applies to the current business models themselves. This has knock-on effects, e.g., for product development and the sales and distribution process. It is also important not to overlook the progressive automation of the retail customer relationship, which allegedly leads to increased transparency and radically different—and increasingly volatile—patterns of consumer demand.
A quote from Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, provides a particularly apt description of the times. He defines the pace of technological changes as follows: “In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.” This appears to be highly appropriate and gives an excellent perspective on the future of the financial services sector.
The asset management industry has profited from the current economic situation and financial system framework. The low interest rate environment has led to an increase in demand for professional asset management, both active and even more so, for passive asset management. For example, when we consider Germany, asset managers added almost €141 billion of net capital inflows in the first nine months of 2015. This is more than double the amount achieved in the first nine months of 2014, which was already a record-breaking year in history. Asset managers find themselves under pressure to optimize their processes and increase their levels of innovation because of the ever-increasing amount of regulation. This is also mandatory, because the pressure from “FinTechs” is here to stay and is more than likely to increase as digitalization progresses. With respect to product development and sales, one could say that advances in future technology will be the deciding factor in the competition between market participants, at least in respect of the retail market.
The many complex aspects of the financial services sector and especially those in the asset management industry, which in our opinion cannot be solved by the individual domestic markets, will lead to a Europewide duty and responsibility to meet these challenges. This not only refers to the financial services sector, but also refers especially to other topics that currently affect us, from the stream of migrants to other general terror threats.
- In focus
Interview— Zooming in on the features and effects of the ELTIF framework
- Hot topic
Interview— Investing in the “Real Assets” market— Perspectives
- The Art & Science of Smart Beta
- Why the Eurocrisis is here to stay and what it means for investors
- Back (office) to the future
The four digital trends altering the status quo for custodians
- Regulating the asset management industry proportionally will help create growth and jobs
- German custodians on the New Silk Road
Guiding investors into faster growing markets
- European depositary regulation
Striking the right balance?
- Impacts of Solvency II on the investment policy of insurers
- A common language is not enough
- A View on the Future Landscape of European Regulatory Reporting
- Fund distribution under MiFID II
Strategic considerations for investment managers distributing funds across the EU