Newly appointed CEO of the UK’s Investment Management Association (IMA) Daniel Godfrey aims to use his experience working with regulators to help the industry navigate a wave of regulatory change.
Speaking to theTRADEnews.com, Godfrey said the ongoing series of regulatory reforms – from MiFID II and EMIR to UCITS revisions and the AIFMD – will benefit the asset management sector in the long term.
“Increasing regulatory focus means that the ability of an industry and individual firms to deal with regulation has become a point of competitive advantage.
“The top line is that our objectives and those of regulators are aligned – we all want well-protected customers and constant improvement in transparency, simplicity of communication and financial capability,” Godfrey said.
During an 11-year spell as CEO of the Association of Investment Companies (AIC) Godfrey proved his ability to work closely with regulators to tackle the ‘split-cap’ controversy, whereby investment trusts receiving dividends and capital gains began investing in each other, enhancing returns with debt.
Godfrey’s track record in addressing challenging regulatory circumstances will prove invaluable ahead of sweeping changes affecting investment and trading in Europe, including far-reaching new rules for over-the-counter (OTC) derivatives trading, which will see buy-side costs rise as regulation forces swaps clearing through central counterparties.
But, in a time of weak equities performance, what can the IMA, which represents members with a combined total of £4.2 trillion assets under management, do to stem the tide of draining confidence out of the asset management business?
Godfrey believes rekindling the trust destroyed by the financial crisis and subsequent scandals, such as LIBOR, will be a central pillar of his stewardship, alongside active engagement with industry watchdogs and supervisors in pursuit of effective regulation.
“Our shared objective is to have effective regulation that protects all customers properly but we also have to work with regulators to ensure we have regulatory regimes that are not unnecessarily expensive or complex as this raises costs and distracts attention from the business of making money for our customers,” said Godfrey, who takes the reins on 1 December.
The UK industry was put under further pressure in July, when the Kay review, charged by the government with examining short-termist approaches to investment in the UK equity markets, should provide greater transparency of costs, including trading fees.
Tough environment
Asset managers face a tough environment, with poor macroeconomic conditions in Europe depressing fund returns and equities volumes, with the latter hiking trading costs.
Over the last five years, passive investment in the UK equity market via index funds has netted higher returns on average than active investment, excluding management and performance fees, which are markedly higher for the latter.
Index funds, representing just shy of £39 billion, had an average return of 10.02%, while active funds, representing £301.1 billion, achieved an average return of 9.79%, according to Strategic Insight, an Asset International company.
According to Godfrey, all issues to improve performance will be on the table for the IMA.
“As a trade association, it’s not for us to tell firms how to structure their business, but in terms of the bigger picture, we will certainly engage with all stakeholders, collect research, develop ideas.
“We hope to stimulate debate that leads to better long-term outcomes for customers and a healthy, profitable industry with a sustainable business model,” said Godfrey, who most recently spent two years at closed life and pension fund consolidator Phoenix Group.
Outgoing IMA CEO Richard Saunders has held the position for 11 years. In August, Saunders successfully lobbied the UK government to include derivatives as part of proposed reforms that would ringfence retail banking from investment banking. Once Godfrey’s term begins in December, Saunders will assist in an advisory role until the year’s end.