tightening pressure transforms the landscape: the state of asset management

Tightening pressure transforms the landscape:The state of asset management

© 2016 Grant Thornton LLP. All rights reserved. 2

Introduction

After years of growth, asset managers face a number of challenges. Pressure on fees is mounting as new competitors introduce alternatives to the traditional fee model and mutual fund investors move away from higher-fee actively managed funds. The regulatory burden is increasingly daunting as the SEC looks to improve liquidity risk management by open-ended funds, as well as to sharpen scrutiny on cybersecurity. New tax rules also require rethinking traditional structures and positions.

Within the following slides we examine these challenges and provide insight into the state of the asset management industry.


Challenges facing the asset management industry

1 Pressure on fees

2 Grappling with a heavy regulatory burden

3 Liquidity risk management

4 More scrutiny on cybersecurity

5 New tax rules and implications


Challenges

• New competitors are developing alternatives to the traditional fee model.

• Scrutiny over private equity fees has increased.

• Investors have moved away from higher-fee actively managed mutual funds to lower-cost passive index funds and exchange-traded funds.

• Technology-enabled robo-advisers are putting pressure on the lower end of the market.

• Global anti-bribery and anti-corruption laws present a challenge for the first time.

• The burden of existing regulations continues to grow as well.

• Form ADV revisions add to disclosure requirements.

Pressure on fees Grappling with a heavy regulatory burden


Challenges

• In 2016, the SEC voted to improve the liquidity risk management by open-ended funds.

• The regulation will provide more transparent and relevant disclosures regarding fund liquidity and redemption practices.

• Asset management firms are targeted by cyber- threats because of their access to information about investors.

• Breaches can shake investor confidence and compromise the firm's ability to raise funds.

• Further complexity is introduced when third parties have access to investor information.

Liquidity risk management More scrutiny on cybersecurity


Challenges

• New rules have emerged dealing with partnerships, disguised sales, debt sharing and tax audits.

• New tax reform regulations are expected to call for rethinking traditional structures and positions.

New tax rules and implications


How can technology help?

• Today, asset managers tend to operate on many different technology platforms that do not interact with one another.

• Connecting disparate data systems could provide intelligence and insights on the correlations between lagging and leading indicators of performance.

• Asset management firms are looking to artificial intelligence solutions to help respond to a growing number of compliance tasks.

• Rush to embrace regulatory technology has been growing since financial crisis.• Technology can be leveraged to increase transparency in accordance with investor desires.

Technology holds the promise, but not the single answer


A changing landscape

• Private equity has grown as larger PE firms move downstream for deals and PE managers become more comfortable with add-on acquisition strategies.

• Hedge funds face challenges of persistent low interest rate environment and a bull market for equities that has raged since 2009.

• Large funds have financial resources to invest in technologies needed to address regulatory and risk concerns.

• Small funds can carve out strategic niche to serve specific investor needs.• Squeeze created on midsized funds, who are assessing if they can make it on their own.

Certain sectors are benefiting from the changes, to the detriment of others


Moving forward

• Understand the changing landscape• Strategically position their firms to deliver value based on their unique strengths• Use the period of consolidation to create the transparency, insights and fee value that connect with global

investors in innovative ways• Understand all asset classes and demonstrate the agility to guide investors with effective technology

platforms that cross multiple asset classes

Finally, they will have the courage to follow through with promising innovations that will provide reliable results for clients

Managers of the best-run firms will:


Contact us

Michael PatanellaNational Sector LeaderAsset ManagementGrant Thornton LLPT +1 212 624 5258E [email protected]

"The entrepreneurial spirit of the industry will always encourage agile newcomers who are willing to rewrite the rules. Inflection points mean change, but they also create

new opportunities for growth for a new breed of asset manager, one who is more diverse, transparent and savvy at finding ways to help investors manage their wealth and risk."-Michael Patanella, Grant Thornton LLP's Asset Management

National Sector Leader

mailto:[email protected]


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tightening pressure transforms the landscape: the state of asset management

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