Consolidation, yet polarization

Resulting pricing pressures and the need for investment suggest that the largest asset management firms will continue to enjoy scale advantage. Add the growing cost of regulatory compliance and the impact of further banking divestments, and consolidation is expected to continue, if not accelerate.

Some managers are diversifying by developing new products or extending product ranges, while others are offering existing products to new customers or seeking to enter new geographic markets, such as emerging-country economies. Others are evaluating long-term viability to determine whether to be acquirers, enter into joint ventures or possibly prepare to sell their firms.

Whether asset management firms decide to acquire new firms, consolidate product lines or launch new products in 2012 will depend on what happens to valuations, regulatory and tax uncertainties, as well as on how financial markets perform.

Our approach — grounded in industry-specific experience and committed to delivering measurable, sustainable results — can help you adapt and succeed.

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Investor transparency and communication

Post credit crisis, transparency has become the buzzword, namely in the alternative investment management industry. Additionally, investors are more focused on risk than ever before.

Asset management firms must respond to the increased transparency requirements of institutional investors, especially with information and proactive reporting around the mitigation of both investment and operational risks.

Requests for third-party reports have gained significant momentum in the industry as they have become an effective and efficient tool to communicate about a firm’s internal control structure and in turn address increased investor demands.

We can help you prepare accordingly.

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Governance and regulatory changes

Significant regulatory changes impacting the asset management industry are occurring, including FATCA, AIFMD and expanded registration for investment advisers with the SEC. Changes may include increased capital requirements, leverage limits, remuneration caps and/or new disclosures and reporting.

Structural changes to the global banking system, Solvency II and the regulation of derivatives may also have profound and unpredictable effects on the asset management industry.

In addition, Europe is increasingly focused on shadow banking activities and how best to regulate, while the SEC in the US has discussed further reforms to the money market fund industry in light of the financial crisis.

In response, asset management firms are evaluating current compliance functions, resources (both people and technology) and establishing formal compliance policies and procedures. Further, business models are evolving as there is more interest by alternative managers in regulated products (e.g., UCITS, mutual funds) and conversely, more interest by regulated managers in absolute return strategies.

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Expanding beyond domestic borders

International expansion has emerged as a major focus in the asset management industry with asset managers from all regions looking to increase their presence beyond domestic borders. The “East to West and West to East” phenomenon is expected to gain further momentum in 2012.

Many managers are cautious about the rapid shift of capital into emerging markets, and have concerns about the prospect of asset bubbles in these markets.

Rather than returning to business as usual after the global financial crisis, new patterns of international investment are emerging. Asset management firms will need to adjust their strategies to reflect the changing patterns of investment that are developing and position themselves competitively.

Are you prepared?

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