Performance and clients taking back seat to regulatory issues for buy-side

Survey of asset managers conducted by Linedata finds traditional asset management issues are being superseded by regulation, data management and cost cutting.

Traditional concerns of asset managers such as investment performance and client relations are increasingly taking a back seat as firms struggle to navigate other changes in their business, according to research by Linedata.

While regulation unsurprisingly took the top spot among asset managers’ concerns, other issues such as data management and generating operational efficiencies have also become prominent.

Linedata’s research over the past four years found that, over time, issues that have traditionally been core concerns for investment managers have become less important. In 2014, almost 50% of asset managers highlighted investment performance as a key challenge but in 2016 this had fallen to less than 25%. Similarly, client relations was seen as a major challenge by almost 30% of firms in 2013 but dropped to just 18% in 2016.

One of the more notable challenges highlighted by asset managers in 2016 was generating operational efficiencies and cost cutting, with well over 40% highlighting this as a core issue this year, where it had previously hovered around the 30% mark since 2013.

Regulation also saw a major surge this year, with almost 60% of asset managers highlighting it as a major concern, up from around 50% previously. The Market Abuse Regulation coming into force later this year and increased clarity around Mifid II obligations are likely to be the key drivers behind this.

Linedata’s research shows Mifid II is expected to have the greatest impact on firms, with 40% listing it as a top three priority, closely followed by the Alternative Investment Fund Managers Directive and Solvency II.

Linedata’s report said: “Whilst the key challenges of managing regulatory change and maintaining operational efficiencies/cutting costs have not changed since last year, there are some indications that the emphasis is now less on acting on regulation, as much of that is in place, and towards a better understanding of the long term systemic changes that regulation is having on the asset management industry.”

Data management was also a concern for almost 30% of firms and has become an increasingly important issue for firms as focus on issues such as best execution and managing customer data have risen up the regulatory agenda in recent years.

Additionally, despite significant discussion in the media and at industry events around the potential for Blockchain to be disruptive to the industry, only 8% view it as being disruptive over the next five years. Cybercrime was by far the most disruptive development for most firms, highlighted by 36% of respondents to Linedata’s survey, while movement towards alternative investments and new intermediation models were seen as disruptive by 25% of firms each.

Exchange-traded funds (ETFs) are seen as a major growth area for firms, along with derivatives products, though both fixed income and equities are also expected to grow as well.