Rebuilding trust is primary challenge for global asset managers

15 December 2011

White paper reviews and analyses key challenges relating to risk, cost and growth that asset managers face in post-crisis financial environment and concludes with how they can be addressed.

SimCorp StrategyLab, an independent research institution sponsored by SimCorp, has released a white paper entitled: “Asset Management: Rebuilding Trust is the Main Challenge Facing Global Asset Managers.” It follows the 2011 summit held by SimCorp StrategyLab in Copenhagen where a group of 9 asset management industry gurus from around the globe discussed 12 specific issues relating to risk, cost and growth. The resulting white paper comprehensively analyses these issues in the light of the global financial crisis. It has identified that one of the most essential elements needed in restoring investor trust is greater transparency.

“This white paper has been born out of a highly constructive summit,” says Stephen J Brown, David S Loeb Professor of Finance at NYU Stern School of Business, who headed the asset management group at the summit and is the editor of the paper. “It draws from the best minds in the industry. They acknowledged the relevant issues and identified practical solutions. Some solutions may be difficult to implement, but they are all workable and essential for future growth and success.”

The paper points out that during the financial crisis of the late 2000s, many asset managers failed to protect their investors against market decline and volatility; others sold products that they themselves did not fully comprehend. The result has been that their reputation has been severely tested and the need to rebuild confidence is the single most important challenge for the industry: “confidence has been shaken and regulators have been stirred,” it points out. Embracing the resulting groundswell of regulation in a positive way will help restore confidence in the long term.

Improved transparency is paramount at all levels: products, processes, costs, accounting and compliance. Firms must know in detail their own cost structures as well as increase the transparency in business processes and products for sale. They also need to audit their information systems infrastructure to ensure that it is robust enough to meet the challenges posed by today’s changing market environment. Reliance on legacy information technology can be costly, inefficient and possibly ineffective.

These are some of the findings of the white paper which assesses four risk challenges (operational, market, regulatory and legal); four cost challenges (structure, operating leverage, trading and regulatory compliance); and four growth challenges (issues and opportunities, increased competition, size and positioning). It also explores the interrelation between risk, cost and growth.

In addition to Professor Stephen J Brown, other participants at the summit and contributors to the paper include captains of the investment management industry, industry bodies, consultants and senior academics from around the world, namely:

•Lester Gray, chief executive of Schroders, Asia
•Michael Jarzabek, general manager of LBBW Asset Management
•Lars Eigen Møller, executive vice president and head of asset management at Danske Capital
•Dr Matthäus Den Otter, managing director of the Swiss Funds Association
•Dushyant Shahrawat, senior research director at Tower Group
•Marno Verbeek, professor of finance at Rotterdam School of Management, Erasmus University.

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