The environment of changing demographics and markets will set Asset Managers in a more prominent position than in the past. In order to profit from these developments, asset managers should consider the following trends:
- The financing of retirement and healthcare systems demands for innovative solutions which asset managers are well positioned to provide.
- New regulatory requirements restrict proprietary trading for banks and insurers and force them to focus on their core business. This leaves room for asset managers to fill the gap.
- Asset Managers play an important role in raising capital to support the growing infrastructure demand.
- Latest regulatory initiatives to enhance fee transparency put pressure on established distribution models. This can be a chance for larger asset managers to come up with innovative distribution models but may bring some disadvantages for smaller product houses due to their limited distribution power.
- The distribution landscape is changing. There is a trend towards pan-regional fund distribution blocks with four distinct geographical areas emerging: North Asia, South Asia, Latin America and Europe.
Due to these trends, asset managers should turn their attention towards the following key challenges:
Net flows are shifting away from traditional products towards ETFs, liquid alternatives and special structures based on an increasing demand for low cost products, asset diversification and outcome orientation strategies. Therefore, fund managers need to rethink their offering and product mix.
The mass market is likely to be left unadvised when new pricing models emerge due to the unbundling of fees and the introduced ban of inducements. This could be an opportunity for fund firms to step in and build a distribution strategy directly targeting the customer.
Driving towards a standardized and centralized operating model in order to leverage on consistency, improve controls and reduce costs will become key for asset managers
Complex and multiple regulations require fund firms to adopt an integrated and strategic approach to compliance. Building an integrated data architecture is an important part of it.
We support our clients in tackling these and other challenges by offering distinct and tailored services and help navigating through the complex environment.
Key regulations for asset managers include:
The Alternative Investment Fund Managers Directive (AIFMD) is a financial directive which came into force on July 21, 2011. The AIFMD applies to managers or hedge funds, funds, real estate funds and managers of other alternative investments operating within, or marketing to investors in, the EU.
The requirements under AIFMD include authorization of an AIFM with its home state regulator for AIFMs with assets under management above certain thresholds. The AIFMD also includes capital obligations, organizational and governance requirements as well as provisions for the regular disclosure of information to investors. Furthermore, the AIFMD requires AIFMs to select only financially sound brokers and counterparties subject to regulatory supervision and with the necessary organizational structures to provide services to the AIFM or the AIF.
All AIFM’s must submit periodic reports to their respective regulator containing information about the AIFM and its AIFs as well as an annual report with details on the fund's financial statements, activities and the total amount of remuneration paid by the AIFM to his staff.
The Regulation on Key Information Documents for packaged retail and insurance-based investment products (PRIIPs) came into force in EU Member States on December 29, 2014. The regulation introduces a standardised pre-contractual Key Investor Document (KID) for manufacturers as well as distributors of PRIIPs and applies inter alia to investment products such as investment funds, structured products and insurance-based products with an investment element.
On June 23, 2015 the Technical Discussion Paper on Risk, Performance Scenarios and Cost Disclosures in KID’s has been published. A Consultation Paper setting out the draft technical standards has been published on November 11, 2015 and is open for consultation until January 29th, 2015.
The Undertakings for Collective Investment in Transferable Securities Directive (UCITS) is a consolidated EU Directive, that allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one Member State. EU Member States, however, are entitled to enact additional regulatory requirements for the benefit of investors. UCITS V is comparable to the Alternative Investment Fund Managers Directive ("AIFMD"), regulating managers of hedge funds and other alternative investments.
UCITS V introduces new rules on UCITS depositaries, such as specifying the entities eligible to assume this role, their tasks, delegation arrangements and liability. In addition, general remuneration principles applying to fund managers are introduced. Member States shall adopt and publish the laws, regulations and administrative provisions necessary to comply with this Directive until March 18, 2016.
The Federal Act on Collective Investment Schemes (CISA) aims to protect investors and to ensure the transparency and functionality of the financial market. It regulates open and closed-end collective investment schemes. CISA is designed as a framework law, focusing solely on basic regulatory standards. The Ordinance of the Swiss Federal Council on Collective Investment Schemes as well as the Ordinance of the Swiss Financial Market Supervisory Authority on Collective Investment Schemes (CISO-FINMA) provide more detailed obligations.
FINMA authorisation is required by asset managers based in Switzerland seeking to set up and/ or manage a collective investment scheme. This authorisation is only granted if the general (e.g. person responsible for management and the business operations have a good reputation) and specific (e.g. must have the required equity capital and appropriate organisation) requirements are met.
Investment Guideline Monitoring is a function within portfolio management or investment management. It is concerned with independently supervising and monitoring the quality of asset management accounts with the aim of ensuring compliance with investment guidelines set by the regulator or fund contracts. Depending on setup, investment controlling not only encompasses controlling activities but may also include other areas from compliance to performance reviews. Insufficient investment monitoring can lead to violations which result in indemnity of clients in a best case and fines in a worst case scenario.