Innovation for Asset Management EH0100

8/13/2019 Innovation for Asset Management EH0100

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Whats new?Innovation for asset management2012 survey


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ContentsForeword . . . . . . . . . . . . . . . . . . . . . 1

Survey results . . . . . . . . . . . . . . . . . . 3

Categories and drivers. . . . . . . . . . . . . .5

Budgeted innovation spend . . . . . . . . . . .9

Processes and committees . . . . . . . . . . 13

Outsourcing. . . . . . . . . . . . . . . . . . . 17

Future . . . . . . . . . . . . . . . . . . . . . . 19

Methodology . . . . . . . . . . . . . . . . . . 23

Contacts. . . . . . . . . . . . . . . . . . . . . 25


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1 | Whats new? Innovation for asset management 2012 survey

ForewordInnovation. Increasingly, we nd the word in many company

brochures, annual reports and marketing campaigns.

But what is innovation beyond the buzzword? Innovation

is not a recent phenomenon. Man has been innovating

since the rst stone tools were used; however, research

into the process of innovation itself is a relatively recent

development. While innovation is no longer an alien term,

it has not always been associated with developments in

nancial services.

The legends of great innovations are ubiquitous. 3Ms Post-

it note began as a solution without a problem. The adhesive

was invented in 1968, but it wasnt until 1974 that the idea

of the Post-It note materialized. Post-It eventually became

one of 3Ms biggest brands. Landmark innovations from the

last 20 years alone include mobile phones, the internet and

social networking. Indeed, the top ve young technology

rms; Apple, Amazon, Baidu, Facebook and Google are

valued at close to US$1 trillion.

Every entrepreneur knows that innovation and growth are

linked, and that in mainstream businesses competing to

maintain market share against cloned services, the mantra

is innovate or die. Regardless of the current economic

climate, demographics are shifting quickly: levels of

wealth are increasing, especially in emerging economies;

consumers are becoming more nancially savvy and in turn

more demanding; technology is increasing especially social

and mobile technologies; and regulations are growing. With

all this change, now more than ever, asset managers need

to be quick to adapt and innovate on all fronts product,

distribution and technology.

Innovation is sometimes a pejorative word in the nancial

services industry. Public sentiment is that innovation in

technology is good, but innovation in nancial services is

dangerous, and for many, it evokes memories of complex

products and nancial engineering that have been partly

blamed for recent nancial disclocations. Yet innovation

has to be the sine qua non of the asset management

industry in particular, and there are several drivers.

Demographics is primary, given the need for decumulation

to service the needs of ageing populations around theworld. The economic growth of the BRICs and emerging

markets around the world continues apace. And nally,

the need to generate alpha, ideally on a guaranteed basis,

in a business climate of greater transparency, variable

correlations and concentration risk. Innovation, when

coupled to duciary responsibility, boosts reputation the

converse spells reputational risk.

Ernst & Youngs Innovation for Asset Management Survey

2012. This is Ernst & Youngs rst innovation survey for the

asset management industry. The data behind the survey

was gathered in conjunction with Institutional Investors

European Institute faculty with participation from 36 globalbank-owned, insurance-owned and independent asset

managers, who collectively manage over US$10 trillion of

assets under management (AuM). The survey canvassed

the views of CEOs, CIOs and other heads of innovation

across asset managers running different portfolio manager

styles spanning active, passive, exchange-traded fund

(ETF), quant, alternative, real-estate, UCITS and liability-

driven investment (LDI) strategies. We would like to thank

all respondents for investing the time and energy behind

this initiative. Some of the key ndings were recorded as

follows.

1 Coca-Cola a brand, marketing, packaging and distribution innovator was ranked by Interbrand as the worlds most valuable brand in 2011.


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Whats new? Innovation for asset management 2012 survey | 2

Seed capital is becoming harder to come by.42% of

respondents would seed a new product with more than

US$30 million. The results suggested that the provision of

seed capital correlated strongly with the rms AuM. 70%

of respondents would seed for durations of one to three

years. Although the investment backdrop suggests that

seed capital is likely to remain scarce, not all rms are

restricting seeding. For example, some rms said they

would partner with third parties where the co-investor

looks to receive a discount on fees, typically offered outwithin a 12-month cycle.

Key geography for innovation is Europe. One might

have thought future innovation would center on emerging

markets. However, the majority of European based

respondents indicated that Europe was still the top focus

for product innovation and investment. Based on our

scoring methodology, the top focus was Europe (47%),

followed by North America (20%) and Asia (19%). Many

respondents commented that the key drivers for innovation

were demographic, for example, further developing

dened contribution (DC) and decumulation strategies for

developed markets.

Fixed income and equities are still the main areas

of focus. Individual rms indicated a preference for

developing new funds and products such as farmland

funds, new over-the-counter (OTC) instruments or

offering distribution platforms. However, they told us

that the majority of their innovation budgets remained

focused on xed income (26%) and equity products (29%),

including equity income and absolute return. One asset

manager puts this succinctly, Our current focus is centred

around outcome oriented solutions based on multi-asset

strategies.

Innovation comes from the CIOs and the CEOs.A

majority of rms (83%) said that the Chief Investment

Ofcers (CIO) was a key innovator. The results from

the survey also indicated that clients represented the

biggest source of innovation. However, CIOs and CEOs

spend on average 20% of their time with clients and said

that innovation was seldom an area of discussion. It is

imperative that asset managers think of more effective

ways of engaging their clients to innovate on products.

Functions such as sales and investment professionals, thatdo interact with clients more frequently, need to be better

leveraged for ideas in support of innovation.

Outsourcing decisions need to be well thought out with

regard to future exibility.Several rms, described their

relationship with select outsourcers as more like that of

a business partner than a third party, directly providing

additional input into the innovation process. However,

33% of respondents felt that outsourcing actually inhibited

innovation rather than drove it under circumstances of

signicant regulatory change, stressed market conditions

or complexity. Many rms expressed irritation at the loss

of control. In the outsourced scenario, they tell us thatoutsourcers were sometimes slow to respond to the pace

or depth of change requests, that change requests were

expensive and that there was a lack of engagement when

modeling extreme event risk.

Innovation is clearly on the minds of many C-suite

executives, and the results of the survey have given us

grounds for renewed optimism, and many interesting

insights. We are condent you will gain insights and value

from reading our report.


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Survey results


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Categories and drivers


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19%

31%

11%

8%

6%

17%

8%

Product-based

Risk-based

Asset Allocation

Dont know/No responseCreative solutions

Productivity/Efficiency

Other/General 0

20

40

60

80

100 92%

69%

53%

39%

22%

11%

New products

New combinations

Business model

Infrastructure

Style shift

Other


Unsurprisingly, asset managers have differing denitions of innovation

Asset managers had a wide range of different denitions

of innovation and in many cases a rms denition of

innovation provided deep insight into their ethos. Many

viewed the meaning in different ways purists felt that it

should only apply to something totally new, differentiable

from peer offerings. While others regarded the term more

broadly, counting repackages, style shifts, derivatives or

structured products as innovative.

Almost all asset managers considered the creation of

new products as innovation. LDI and variants of ETFs for

example were mentioned several times. Other examples

included entering emerging markets, farmland funds,

developing new OTC instruments such as variance swaps,

or focusing on specic types of distressed assets such as

packaged loan repayments.

Creative solutions tailored to meet the needs of each client

were cited by 31% of respondents in terms of dening

innovation. Examples included pooled LDI funds, building-

block Qualifying Investor Funds (QIF), tailored ETFs or

custom liquidity swaps. Some rms dened innovation in

terms of offering improved risk models/risk optimization.

Others dened innovation in terms of productivity/

efciency of product manufacture/distribution/

Independent Financial Adviser (IFA) or research portals

according to principles such as total quality management(TQM) or immer besser.

Firms with a quantitative orientation saw innovation

in terms of making improvements to static or dynamic

strategic asset allocation (SAA)/tactical asset allocation

(TAA), or improving currency overlay, portfolio insurance

or multi-asset capability. Finally, a signicant minority cited

the development of platforms, modeling tools or full-blown

vendor solutions as innovative.

How does your business dene innovation? Which of the following categories would

you classify as innovation?

Respondents were asked to select any applicable options.


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29%

19%

19%

16%

12%

5%

Clients

Regulations/Government

Technology

Academia

Consultants

Other0

20

40

60

80

10083%

72% 72%

50%42%

29%

CIO

CEO

Investment professionals

Product development

Sales

Other


Clients, technology and regulations are top three drivers behind

innovation

The survey scoring methodology shows clients to be the

strongest drivers of innovation, followed by technology as

an enabler. Perhaps surprisingly, global, regional or local

regulatory measures and changes from governments

applied particularly to their interaction with channels were

cited as strong drivers of innovation as well.

Equally, surprising perhaps were the lower scores reported

for academia and investment consultants, although the

survey did record that academia played a more signicant

inuence in certain countries such as the US or France.

There was negative comment that some investment

consultants were actually contributing to client mandate

risk by directing their innovation efforts at end investors.

Other examples of drivers included changes to tax

treatments such as Foreign Account Tax Compliance Act

(FATCA)/nancial transaction tax (FTT) or developments in

high-frequency trading.

While the survey results showed how clients were often

the top drivers of innovation, the executives carrying the

torch for innovation were the CIO in 83% of cases and the

CEO or other investment professionals (such as the heads

of distribution) in 72% of cases. These professionals were

typically spending 10% to 30% of their time with clients.

Other heads of sales, and especially product development,

were only cited by 42% and 50% of respondents

respectively. Even allowing for some bias on the part of

CIO/CEO respondents, it was clear that the full spectrum of

functions that interacted with the end investor clients were

not always leveraged for investment ideas or commercial

information in support of innovation. A result that could be

easily and inexpensively remedied in several cases.

How do you rate the following as drivers of

innovation in your organization?

As an asset manager, which of the

following do you view as an innovator in

your rm?



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Budgeted innovation spend


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8%

92%

Yes

No

0

10

20

30

40

50

0%

9%

17%

6%

25%

43%

2yrs


Firms do not have separate budgets for innovation

Only three respondents (8%) claimed to maintain a separate

budget for innovation. This is in sharp contrasts to other

industries such as hi-tech manufacturing, the automotive

or the pharmaceutical industries where more than 10% of

revenues might be reserved for innovation in the form of

R&D budget.

In the majority of cases innovation is a formalized, organic

process leveraging the product development budget and

therefore tapping into the business-as-usual structure of

investment committees, product development committees

and seed capital processes. The results from the survey

suggested that these procedures were satisfactory and

stable, indicating the trend was likely to remain so in future.

However, 36% of respondents estimated that budget was

affected by recent investment performance.

In terms of reviewing investment styles or product

development cycles, the results varied by the size and style

of each rm. Some styles/strategies passive investing

or quantitative strategies for example carried predened

structures, so the time to market for new products was

likely to be unaffected by regulatory changes.

Product cycles for rms offering active, ETF, hedge fund,

UCITS, investment trust, money market fund or LDI styles

was likely to be impacted by new regulations in both the US

and Europe1. The time-to-market for new products will be

extended to accommodate the new checks that need to be

put in place, but more seriously, additional capital charges

may place extra burden on the rms ability to provision

seed capital. This is explained in greater detail later.

Does your rm have a separate innovation

budget?

Typically, how long would you be willing to

invest in an innovation idea?

1 Some regulatory measures such as MiFID place restrictions on the execution-only marketing of products perceived as not non-complex to retail-

classied investors. Some measures place restrictions on leverage (AIFMD) or incur additional charges through introducing liability measures (AIFMD/

UCITS V). Some regulators have powers to ne rms publicly for misselling or to intervene during product development cycles. Some regulators penalize

rms for inadequate systems/controls relating to products that are leveraged, illiquid or complex in the form of insisting on higher capital changes (e.g.,ICAAP). Some regulatory measures may increase cycle times from changes to the market microstructure (Dodd-Frank and EMIR). Additionally, regulators

in the US and European Union are placing ETFs and MMFs under close scrutiny under proposed Shadow Banking measures that may also warrant higher

capital charges.


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47%

20%

19%

5%

5%4%

Europe

North America

Asia

South America

Australia

Africa

32%

22%

17%

14%

12%

3%

Products

IT

Business

Operations

Regulation

Other


Budgeted innovation spend by geography and category

Perhaps unsurprisingly (given that 81% of respondents

were located in Europe), Europe received the highest

bias for innovation spend in terms of geographic region,

followed by North America and Asia-Pacic in equal

measure. Mention of the BRICs was relatively underweight

(despite growth exuberance in China), nor was there much

mention of specic emerging markets. In terms of regions,

there was relatively little mention of either South America

(except Brazil or Chile) or Africa at this time. Several rms

indicated that this asset allocation strategy could alter ifthe Financial transaction tax was introduced across Europe.

A minority of rms such as certain hedge funds expressed

the interest to diversify their investor base geographically

and by investor type in order to mitigate correlation risk,

and they placed incentives on their distribution team in

order to achieve that aim.

The results of the survey showed a signicant bias towards

assigning innovation spend to either product development

or IT enhancement. Improvements behind product

strategies has already been covered elsewhere, and the

improvements to IT infrastructure cited in the survey

were many and varied, ranging from leveraging social

media or cloud computing to developing new platforms

for distributions, in-house modelling and stress-testing,

in-house valuation, collateral management, client reporting

or improvements to reference data handling such as legalentity identiers (LEIs).

Innovation in other categories of spend seemed

underweight. A smaller proportion of respondents ranked

operations as a key focus; which runs against the tendency

of some rms wishing to outsource back or middle ofce

functions to providers. The lack of focus on regulation is

a concern, given that this nondiscretionary component is

likely to double in spend over the next three to ve years.

Rank budgeted innovation spend by

geographic region

Rank budgeted innovation spend by

category


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0

10

20

30

40

50

30%

44%

26%

Under 1yr

1-2yrs

3yrs

0

10

20

30

40

50

35%

15%

8%

42%

US$10m

US$11-20m

US$21-30m

Over US$30m


Seed capital provision

The provision of seed capital is sometimes viewed

as controversial. In the minds of some, self-seeding

demonstrates conviction, committing a rms own capital to

achieve critical mass while taking some of the market risk

away from self-insuring funds. To others, seeding implies a

potential for conicts of interest to develop, especially if the

seeding consists of co-investing with specic distribution

agents and this aspect is undisclosed to the end investor.

Regulators are known to be keen to encourage disclosures

in both instances.

The survey results suggested that the provision of seed

capital correlated strongly with the AuM of the rm, with

longer time frames for seeding often coinciding with a

generally longer product cycle time. Some of the more

advanced asset managers adopted a bifurcated approach

to seeding, with the cycle time recorded for seeding

proportionate to the style as follows.

1) Seed capital commitment as R&D - the rm commits

its own capital and this is typically seeded over anything

from a one- to three-year cycle. As mentioned earlier,

this approach implies a degree of skin in the game

commitment, and some regulators are known to favor

a greater degree of disclosure, particularly if there are

positions on the balance sheet that extend beyond one

year.

2) Seed capital commitment in the form of

commercialization, e.g., co-investing or partnering with

distributors, agency brokers or IFAs where the co-investor

looks to receive a discount on the fees, typically offered

out within a 12-month cycle to avoid prudential regulatory

complications from having capital sitting on the balance

sheet for more than one year. Some rms are known to

favor hedging seed capital via a combination of high-yield

bonds, cash or repo in order to address this issue.

What is your typical duration of seed

capital investment?

What is your typical amount of seed

capital investment?


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Processes and committees


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19%

78%

3%

Yes

NoDont know/No response

0

20

40

60

80

100

68%

100%

26%

63%68%

21%

89%

37%

CEO

CIO

CFO

COO

CRO

CCO

Business

Other


Innovation committees

The overriding sentiment from the survey was that no one

rm had a monopoly on good ideas for innovation. Several

respondents who felt that innovation was embedded into

their rms corporate culture, believed that the combination

of individual, bottom-up ideas coupled with top strategic-

level vision of the marketplace was key. The direction of

travel seemed to be collegiate. Certainly regulators are

less likely to view rms with a star fund manager culture or

heavy portfolio manager conviction inuence as kindly as

before.

It should be noted that while only 8% of rms had a specic

innovation budget, 19% of rms possessed an identiable

innovation committee that met monthly, quarterly or

ad hoc as the situation demanded, depending on the

investment style of the rm. Innovation committees were

typically tasked with generating, testing and challenging

new product ideas, establishing the bases for product

manufacture, distribution, repurposing or closure (including

seed capital decisioning). Coverage typically concerns all

lines of business and ensuring that all procedures were

conducted in line with established stewardship practices.

The survey established that the innovation committees

(where they exist) consist of CIOs in all cases, plus heads

of business (usually distribution) and usually senior C-suite

functions such as CEO, COO or Chief Risk Ofcer (CRO) in

about 66% of cases. Results varied considerably by styles of

rms in some cases, chief strategy or chief administration

ofcers also featured.

While recognizing the small sample size, the area for

some concern was the relatively low occurrence involving

either the CFO or Chief Compliance Ofcer (CCO) on the

innovation committee. The involvement of the CFO might

become more prevalent as product protability becomes

a key metric and pricing decisions become challenged by

regulatory transparency and greater use of search engines.

The early presence of the CCO will help other professionals

understand the ramications of where the regulators

are going when scrutinizing products that are labeled as

structured, guaranteed, absolute or leveraged, and avoid

the reputational consequences of misselling.

Does your rm have an innovation

committee?

Who sits on this committee?



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8%

36%

11%

25%

20%


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0

20

40

60

80

10086% 83%

67%

53%

17%

Returns/alpha

Client suitability

Risk management

Size of fund

Client redemption

0

5

10

15

20

25

30

35

40

19%

38%

15%

19%

9%

0-3

4-10

11-20

21-40

>40


Review criteria of new products and number of funds shut down

The results of the survey showed that product review

processes were revisited regularly according to the

suitability of the product for the category of end investor

or the risk-adjusted performance if that benchmark was

relevant. Some of the other key criteria by which products

were rated included sales, net ows and size of fund.

Respondents generally agreed that there was a need to

incubate new products in order to give things time to work.

Cases of rms moving their product reviews back from

semi-annually to annually were not uncommon. There was

also a prevailing trend in favor of paying attention to the

economics of innovation, because the process of closing

down a fund can be long and cumbersome. One rm noted

that: Weve been too innovative in the sense that we

launched 20% more products over the last year. You end

up building a high xed-cost base when you do that. We

are looking at increasing the thresholds to green light new

products, because the cost ratio of starting up to shutting

down a product range can be anything from 1:3 to 1:5.

Most rms also demonstrated a recognized process

of weeding/feeding and killing products that did not

perform according to expectations. The survey results

suggested that reasons for closing a fund down were

many and varied depending on the size, style, culture

and location of the asset manager. Some of the more

advanced asset managers considered withdrawing seeding

according to the criteria such as: a) promise to the client;

b) investment/trading sustainability; and c) product

indigestion (time allocation).

In some cases, sector or style shifts (e.g., A desire to

focus on active management) were root causes. Despite

a lot of reviews, not many funds were shut down, rms

instead chose to repurpose or soft-close their funds

under different monikers in order to avoid the reputational

consequences. The status quo concerning critical portfolio

managers (either leaving the rm or becoming overloaded)

were also key considerations.

What criteria are new or developing

products reviewed against?

How many funds have you shut down over

the last ve years?



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Outsourcing

Outsourcing supports, enables and facilitates

innovation. But outsourcers can inhibit

innovation if they put a high price threshold on

responding to change requests.

European asset manager

It only makes sense if you have internal skills to

properly manage those outsource providers ...

and it needs to be properly managed within. I think

outsourcing enables you to do more than you could

otherwise do. But then you are subservient to the

timetable of the outsource provider. A lot of rms see

outsourcing as a way to cut cost, and thats a very

short-term view in my opinion. You need to retain

high-quality people to ensure youre running thebusiness properly.

American asset manager


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0

5

1015

20

25

30

35

22%

33%

25%

20%

Drives/Helps

Inhibits

Neither

Dont know/No response

0

10

20

30

40

50

60 53%50%

47%

28%

19%

8%

Administration

Transfer agent

Valuations

Bank provider

Other

Corporate strategy


Outsourcing may inhibit innovation

Outsourcing normally confers benets by converting

xed costs to variable costs, providing the benets of a

shared solution architecture and common standards. The

outsourcing of certain back ofce functions is relatively

commonplace and there are various successful models.

On the face of it, outsourcing per se does not tie up

business capital, and should therefore enable innovation in

investment styles, methods or products.

However, only 22% of respondents felt that outsourcing

supported, enabled or facilitated innovation by acting as a

catalyst. 33% of respondents felt that outsourcing actually

inhibited innovation under the current circumstances of

signicant regulatory change, stressed market conditions

or complexity. The results were varied and depended on

the size and style of the respondents, they did not correlate

with AuM of the asset manager.

Additionally, many rms expressed irritation at the loss

of control when services such as administration, transfer

agency or valuations were outsourced. The need to

reconcile valuations in particular (in-house vs. third party

per various times, and then resolving any variances) was a

consistent challenge for illiquid or OTC instruments. Certain

outsourcers were sometimes slow to respond to the pace

or depth of change requests demanded from regulators

or client mandate shifts. Common complaints from

respondents included the fact that change requests wereexpensive and that there was a relative lack of engagement

when offering solutions to rms modeling extreme event

risk.

In contrast, other rms described their relationship with

select outsourcers in positive terms, more like that of a

business partner than a third party, directly providing

additional input into the innovation process.

Do you believe that outsourcing drives or

inhibits innovation?

What functions do you currently outsource

to third/external parties?



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Future


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2%

22% 16%

19%

23%18%

Demographic shifts

Political scenarios

New technology paradigms

Regulations

Emerging markets

Other


Where will future drivers come from?

The investment climate over the last ve years has

been choppy. Successive nancial market failures, such

as Lehman Brothers, Bernie Madoff and MF Global,

coupled with other signicant nancial mishaps have

put governments and regulators on full alert. Current

macroeconomic and structural uncertainties with countries

in the Eurozone have merely added to the sense of unease.

The response from the governments from the G20, central

banks and competent authorities was swift. Capital-

intensive and pervasive measures such as Dodd-Frank,

Basel III, Solvency II and FATCA are complex, highly

prescriptive and in some cases, extra-territorial. It is clear

that the economic conditions over the next few years will

not be a replay of the nancial conditions experienced

during the last 25 years.

Looking forward to drivers behind innovation for asset

managers in general, a narrow majority of respondents

commented that demographic shifts for example

associated a move from dened benet (DB) to DC

pensions or the need for decumulation to service ageing

populations would be the primary driver.

Global, regional or local regulatory measures were also

cited as a strong future driver by respondents, followed

by new technology paradigms (such as social networking

or mobile investments), political scenarios and emerging

markets (such as investing in the BRICs) were also recorded

as important in broadly equal measure. One universal

bank-owned asset manager commented: You do not meet

customers in the bank branch anymore. We meet them at

10 p.m. online on Facebook, and our clients keep changing

their preferences for interaction.

Where will future drivers of innovation come from?


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1%

16%

21%

19%

29%

14%

Clients

Regulations/government

Technology

Academia

Consultants

Other

1%

10%

37%18%

17%17%

Clients

Regulations/government

Technology

Academia

Consultants

Other


Specic drivers and inhibitors for the industry

Client acquisition, satisfaction and retention were ranked

as the top drivers for innovation. Institutional asset

managers rated specic client segments, such as sovereign

wealth funds (SWFs) and pension funds/plan sponsors,

as particularly important inuencers, or sometimes co-

developers of strategies. Some responses also alluded

negative consequences the wish by certain SWFs for

example to change mandates, giving rise to mandate risk

consequences in the event of downgrades to countries and/

or emergency intervention by the authorities.

Many rms mentioned regulation as a high importance

driver of innovation. Respondents commented how there

was no let-up in the pace, volume and intensity of multiple

regulations and changes to regulations, particularly

in Europe, North America, Hong Kong and Australia,

impacting rms both directly and indirectly.

The trend was precisely reversed when it came to recording

the chief inhibitors of innovation. Given the adverse

publicity and strength of feeling expressed in the lobbying,

it was unsurprising that a majority of respondents rated

regulation as a strong inhibitor of innovation. Perhaps

more surprisingly, many respondents cited their clients

as important inhibitors, the most common reason being

naturally conservative on the part of end investors not

wanting to interrupt winning performance for the sake of it.

The jury was clearly out on technology, academia and

consultants. Some respondents felt that technology

was a key enabler of better performance, while a similar

percentage felt that too much technology or systems

actually got in the way of better performance. Academia

was rated as a positive enabler in the US, France and

the UK by some rms. Respondents felt that investment

consultants stoked mandate risk with a deterrent effect

on innovation.

Rank drivers for innovation in the industry

over the next three years

Rank inhibitors for innovation in the

industry over the next three years


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Universa

l

inh

ibito

rs

Neutral

Uni

versal

drivers

-30 +30


Clients

Consul

tant

s

Technolo

gy

Academia

Academia

Clients


TechnologyDemographics

Emerg

ingMarkets

Politic

alScenario

s

Consultants


Where do we go from here?

Asset management rms face challenges from several

quarters decumulation pressures arising from

demographics, political uncertainties, regulatory

pressures, and high-maintenance end investors such as

SWFs. Innovation is often seen as the alpha upgrade path

escaping the cost burdens of non-discretionary spend in

other areas. It is also seen as a brand enhancer.

It was clear from Ernst & Youngs asset management

survey that asset managers tended to have an overly

optimistic view of themselves as innovators compared

to other industries, such as the hi-tech, pharmaceutical,

auto and telecommunications industries. In several

cases, condence was justied by consistent superior

performance.

Ernst & Youngs asset management survey also revealed

some specic insights into how to maintain the upward

trajectory.

Results showed how clients were often the top drivers

of innovation, yet the full spectrum of functions that

interact with clients were not always leveraged for ideas

or commercials in support of innovation. This should be

imperative.

Outsourcing could not always be regarded as a panacea.

Many rms viewed outsourcers who did not respond

exibly and efciently to change requests could actually be

seen as impediments to innovation. There are opportunities

for rms outsourcing back- and middle-ofce functions to

work together to iron out these issues.

Finally, managing regulatory shifts could differentiate

winners from losers. By not tying up vital business capital

and budget by trying to comply with global, regional and

local measures on a case-by-case basis, rms can keep

their cost to income ratios under control and dedicate more

resources to R&D, thus providing the bedrock for next-

generation innovation.

The factors powering innovation shown in green versus inhibitors in red


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Methodology


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Contacts

Gillian Lofts

Ernst & Young Partner,

UK Asset Management Leader

+44 (0)20 7951 5131

[email protected]

Anthony Kirby

Ernst & Young Director, UK Asset Management

Regulatory Reform, Risk and Regulatory Practice

+44 (0)20 7951 9729

[email protected]

Nicholas Phan

Ernst & Young Consultant,

Financial Services Advisory

+44 (0)20 7951 6858

[email protected]


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Notes


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