London, 27 May 2003 - NoÃ«l Amenc, professor of finance at Edhec and research
director at Misys Asset Management Systems, presented the results of the Edhec/Misys European Asset Management Practices Survey 2003 to the industry
in London last week, 21 May.
The survey, completed by Edhec with support from Misys Asset Management
Systems, the global solution provider for the asset management community, and EuroPerformance, an agency that measures and analyses the performance of European mutual funds, assessed the current practices within the asset
management community in Europe. With more than 60 respondents spread over
all the major European asset management zones - representing 6.211 billion
euros under management - it compared the responses of the investment company
managers, with the results from academic and professional research.
The three major strategic themes included: management offerings and processes; risk management; technological choices. Key findings include: - Despite the current financial slowdown, 58 per cent of the respondents envisage a renewal of their software or technical infrastructure, with 47 per cent of them within the next two years.
- Technology is seen to bring the evolutions asset managers request for risk management, which is currently under-developed within their existing portfolio management systems. Similarly, modelling and compliance are major areas of investment, where there is shown to be a high level of dissatisfaction - 53 per cent in total.
- The majority of asset management firms have chosen a "best of breed" approach for their portfolio management systems - rather than integration - with only 14 per cent integrating front-to-back systems. Only 17 per cent have an integrated front office software package. Faced with economic constraints and the specialisation of investment management companies, the survey predicts that a "best of breed" approach will no longer evolve to a combination of "best in class" solution. Instead, systems that are "consistent" with the business strategy of the firm and the requirement to create value will be implemented.
- Only 51 per cent of the respondents currently monitor the extreme risks of their portfolios. Risk management will constitute one of the investment priorities over the next few years in terms of human and technical resources, of which, 60 per cent of asset management firms will concentrate on improving compliance, 46 per cent on measuring the extreme risks of portfolios, 52 per cent evaluating off-balance sheet positions, and 71 per cent reporting on risks to clients.
- In spite of the future of Basel II and CAD III regulations, only 50 per cent feel concerned by the issue of operational risk. And 82 per cent have not examined the question of setting up an internal model for evaluating operational risk.
- Passive management offerings, especially ETFs, represented 23 per cent of the "equity" management offerings. Alternative investment is today perceived more as a diversification class (54 per cent) than as an investment that outperforms traditional investment management (17 per cent).
- In view of the interest in structured management expressed by 65 per cent of the respondents, there should be a considerable increase in the use of derivatives in asset management, in order to offer new risk profiles which correspond more to the expectations of investors. The provisions of the new UCITS3 directive, which will come into effect in February 2004, will favour this usage.
- In the area of management processes, most favour asset allocation - with the exception of the UK - with 64 per cent of respondents having a top/down management process. It should be noted that the techniques used to implement the allocation and construct the portfolios have not yet integrated the results of the research: the benchmarks are very often market indices; only 22 per cent take extreme risks into account in constructing the portfolio; quantitative tactical allocation, which is favoured by researchers in the area of building out-performance, is only used by 17 per cent of the respondents.