As the asset management industry continues to deal with the impacts of regulation, smaller firms will look to vendors and demand more cost-effective solutions to survive the new regulatory environment, finds TABB Group.
According to a report from the research consultant, which surveyed 100 managers from the U.S., Europe and Asia, under a quarter said the European financial transaction tax (FTT) would have the biggest impact on their business, followed by Markets in Financial Instruments Directive II (MiFID II, 22%) and Dodd-Frank (20%).
For specialist boutique managers (firms that hold less than $5 billion in assets under management), the FTT will be particularly hard-hitting because it will impact the appetite to trade certain products unless a cost-effective manner to administrate the tax is found.
Furthermore following the migration to the T+2 settlement cycle, this could also affect cash and currency positions, rebalancing positions and corporate actions, the report says. The process to manage all of these in a shorter time frame “highlights the requirement to automate processes in order to compete with large firms and anticipate intraday risk.”
“The window to settle trades from the time you execute to the time you settle is continuing to shrink, if you are not set up with an electronic end-to-end solution, it puts more pressures on your loopholes, particularly with the time differences there is more pressure on the whole value chain – you always have to cobble a solution together,” says one U.S. boutique asset manager.
While larger firms may be able to rely on internal resources to deal with the move, TABB argues boutiques will have to be more create with the resources and relationships they have to manage.
The report suggests all these new rules will affect the business model of boutique managers, which have traditionally focus on specific sectors or geographic regions.
Within the new global regulatory framework, the report says to achieve survival they will have to find efficiencies from their vendors such as managed services or outsourcing that will enable them to focus on their core strengths.
“The new era of boutique asset managers will not only be a more selective one, but with the right partnerships it will help empower investment decisions and improve controls to better tackle growing regulatory requirements,” adds Ed Lopez, executive vice president, SunGard’s asset management business.
Boutique Asset Managers Face Regulatory Battle
As the asset management industry continues to deal with the impacts of regulation, smaller firms will look to vendors and demand more cost-effective solutions to survive the new regulatory environment, finds TABB Group.