Asset Management – Industry Outlook

EIJA HIETAVUO, Head of Investment Management Markets, Reuters EMEA

Investment Management 2007

Agenda: Industry trends and Outlook

• Overview of the Asset Management markets• Biggest markets in AuM, Conventional Asset Management• Biggest markets in AuM, Hedge funds

• The Asset Management industry• Past and future of the AM industry • Some general highlights on the AM market• What is happening now in the AM Industry• The AM industry in 2010: trends & visions• What does this mean to Asset Managers in terms of Financial

Information Management?

Overview of the Asset Management markets

Investment Management 2007

Biggest markets in AuM* Conventional Asset Management**

USA

26,489 bn

48%

Source: International Financial Services, London, Fund Management, City Business, 2005 data, fund management of conventional assets (does not include alternative investments)

*AuM = Assets under management

**Conventional assets include pension, insurance and mutual funds

JAPAN

6,153 bn

11%

UKI

4,061

7%

FR

3055

6%

GERM

1781

3%

SWITZ

923

2%

Major Markets concentrate 79% of the AuM

55 USD trillion in 2005

> Major Markets concentrate 79%

of the AuM growth

> Global AuM were 55 USD

trillion in 2005, 10% growth from

2004 and 54% from 2002

> We can estimate industry

CAGR of 6% from end 2005

through 2010 if current economic

trends remain

> Concentration of the industry

has grown in recent years. AuM

of world's largest 500 fund

managers increased 13% in 2004

and 22% in 2003

NETH.

1172

3%

EUROPE

10,992 bn

20%

Investment Management 2007

Biggest markets in AuM* Hedge funds

Source: International Financial Services, London, Hedge funds, City Business, 2006 data

> Hedge Fund industry AuM

totalled USD 1,500bn in 2006 up

a third from 2005 and twice 2003

> Number of Hedge funds raised

5% from 2005 to 2006

> While the USA remains major

location for hedge fund

managers, Europe has doubled

his share from 2002 to 2006 and

Asia grew from 5% to 8% in the

same period

> New York and London are the

most important Hedge Fund

locations

> In Asia, Australia is the most

important location for

management of Asia-pacific

Hedge funds (1/4 of AuM),

followed by Japan with (1/5) and

Hong Kong with 14%

High Concentration on Geographical distribution of Hedge Funds AuM

USD 1,500 bn in 2006

USA

66%

EUROPE

24%

ASIA

8%

The Asset Managementindustry past & future

Investment Management 2007

Past and future of the AM industry

The Evolutionary path since the bubble burst in 2000*:• Retail and Institutional markets have drifted apart• Industry has professionalized• World has extended to include newer markets, stimulating emergence of new

breed international players• Looking forward on tomorrow’s IM world, to summarize:

• There will be growth but it will not be shared equally among players, markets or products*

• The industry structure will gradually polarize, and generic asset managers will cede market share to their differentiated brethren*

• Industry will open up to an even global level were cross border competition will result in greater concentration of players*

• The universe of investable assets is growing, therefore giving opportunity to fund managers to better diversify and search for performance*

• Intensification of the war for talent**

*Source: Will the goose keep laying golden eggs?, October 2006 – The eight annual survey on the profitability of European Asset management, McKinsey & Company

**Source: 2015: the radical redesign of the asset management chessboard, McKinsey & Company, 2007

Investment Management 2007

Some highlights on AM Market

• Key facts on the AM industry:• Capital Markets have been a strong driver of AuM Growth globally• Industry Profitability has improved significantly • Household financial asset allocation to the Asset Management products

(funds) is expected to raise dramatically in the following years• The major opportunities for the industry are derived from:

• The need from retail investors to have new asset management products (funds) to fit their investment needs

• The demographic pressures and the state pension insufficiency to cover cost of living that requires retirement private savings done via asset management products (pension and other funds)

• The stunning emerging market wealth growth in some countries (specially India, China, Gulf States, Brazil and CEE)

*Source: Setting Your Sights on a New Horizon, Roberts & Taglioni, January 2006, McKinsey & Company

Investment Management 2007

What is happening now in the AM Industry

• The Global Fund Manager Survey by Merrill Lynch in October 2007• Fear of Slowdown in Global and European growth as a result of the Credit

Crisis• The Asset “Allocators”:

• Continue to increase their preference for equities over bonds • Prefer sovereign bonds over corporate bonds• Choose large caps over small caps • Adopt growth over value strategies• Choose the technology, materials and industrials over the rest

• Investors have been increasing exposure to emerging markets• JP Morgan 2007 Alternative Asset Survey (Nov 2007)

• Desire to diversify drives big push into alternative assets – more than EUR 1000 bn investment in next 2-4 years

• From Private Equity, Real estate– to Second wave Alternatives like Infrastructure Assets, Commodities and Shipping, Timber and Clean Energy

*Source: The Global Fund Manager Survey, Merrill Lynch,, Investment Strategy, July 2007

Investment Management 2007

The AM industry in 2010 : Key trends

• Key trends that will increasingly shape the sources of industry growth and profitability over the next few years:

• Move from accumulation to income and risk management• Move from relative performance to outcome orientation• Separation of Alpha and Beta• Pension restructuring• Institutionalization of retail sales• Increasing role of marketing and client service• Convergence and evolution of alternative investments• Growing internationalization and diversification of assets

*Source: The Asset Management Industry in 2010, Bigger, sometimes better – and the best pulling away, McKinsey & Company 2006

Investment Management 2007

The AM industry in 2010 (II): Major characteristics

• The trends mentioned in previous slide will influence structure and dynamics of the asset management industry

• By 2010 leading players will look very different than they do today in terms of size, capabilities and products. 5 major differences will characterize the industry and its leaders

• Driving scale to generate a winning edge: scale, multi-boutique and focused asset players

• Different earnings profile for traditional asset managers: new products• A shakeout – of sorts – in the alternative investment industry: more

focused business models, transparency and players’ concentration• A more crowded and complicated industry landscape.• A measured pace for mergers and acquisitions that will depend on the

Asset Manager profile and size, dominant model will be multi-boutique

*Source: The Asset Management Industry in 2010, Bigger, sometimes better – and the best pulling away, McKinsey and Company 2006

Investment Management

Europe: What is Happening here?

Domestic niches under threat – focus on cross-border sales• UCITS III • 70% of European funds are UCITS, pa growth 20%

Demand for new distribution channels• Retail banks vs. IFAs and insurance companies

Product development hot topic in 2008• Extended powers with UCITS III• Focus on alternative assets, LDI and complex investment strategies

Hedge Funds• From institutional to Retail

Regulation• MiFid, KYC/AML, UCITSIII

Pensions• LDI driving shift from equities to bonds and other asset classes• Cash flow matching approach to investment – using bonds to create a porfolio

which matches the expected liability ouflowsSocially and Environmentally Responsible Investment, Islamic Finance

Investment Management 2007

What does all this mean to AM: Technology

• Architecture and Integration: improve infrastructure to support top-line revenue growth

• Order Management and execution management systems• Reference Data Management• Derivatives Processing• Legacy replacement/Extension• Post-trade automation/workflow• Portfolio Analytics• Business continuity• Broker Management technologies• CRM systems

Investment Management 2007

What does all this mean to AM: Compliance

• Tactical Compliance• Compliance with AML/KYC

Know your Customer & CRM

• Operational Risk Management• Compliance with UCITS III

• Value at Risk• Client reporting

• Compliance with MiFiD• Trade reporting

Investment Management 2007

What does this mean to AM: Information Requirements?

Asset Managers Hedge Funds Private Equity

Pension Funds State Funds

Buy Side Intermediation

Alternative

Corporate

Plan Sponsors, Trustees

Lipper Funds

Fundamental

Economic data

Corax

Real Time

ICW

Estimates/Starmine

Global Filings

Commodity Pricing

Real time

Derivatives

Real Estate

Ecowin

Fundamentals

News Feeds

Tick Data

Estimates

Economics

M&A

Low Latency

Private Company

M&A Multiples

IPO & Deals

Credit

Institutional Holdings

Economic data

Fundas/Estimates

People

Retail Investors & High Net Worth Individuals

Private Assets

Asset Allocation Decision

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