London & Luxembourg, May 23, 2016 -- The asset management industry faces a 'triple whammy' of challenges in 2016 - comprising a growing threat from disruptors, a tsunami of regulation and market turmoil - according to a new industry survey from Multifonds, a leader in investment fund software.
Multifonds' annual 'Every Fund survey', which surveyed fund managers and administrators who manage and service assets exceeding $27 trillion and $19 trillion respectively, highlights the key challenges and concerns facing the asset management industry today.
Threat of disruption
• Over half (54%) of respondents believe a new game changing disruptor, such as Amazon or Google will enter the market in the next two years.
• The majority of respondents feel the biggest barriers to entry highlighted by respondents are regulation (74%) and current back office complexity (37%) rather than product and distribution capabilities.
• Asset management is most susceptible to fintech disruption by big data analytics (43%) and block chain (42%).
Tsunami of regulation
• MiFID II is the regulation causing most concern among asset managers and administers, cited by over half (51%) of respondents to the survey, followed by UCITS V (45%) and AIFMD (31%).
• Nearly two thirds (64%) believe the greatest impact of industry regulation is increased costs to investors, surpassing the intended positive aspects of regulation such as better investor protection (58%) or increased transparency (54%); less than a third (30%) believe the influx of regulation positions the industry to better identify systemic threats.
• Almost two thirds (64%) have seen their costs rise over the past twelve months, with over a fifth (22%) spending 20-50% of their overall IT budget on regulatory compliance.
• The need to change technology systems was seen as the biggest challenge posed by regulation (47%), alongside volume of reporting (47%) and ambiguity in regulatory specifications (42%).
The findings come against a tumultuous market backdrop, with statistics from the Investment Association showing a total of £463m was redeemed from funds in January 2016, the most since October 2008, as investors became seemingly unsettled by stock market volatility and concerns over the global economy.
Keith Hale, Multifonds' executive vice president for client and business development, said:
"To cope with the looming 'triple whammy', the asset management industry needs to adapt quickly or risk disruption in a negative sense of the word.
"Many other industries have already been shaken by the entry of game-changing disruptors and the things they look for are inefficiencies and a high cost of production and distribution - these are all currently present in the asset management industry.
"If the industry doesn't evolve, someone else could do it for them. Unless the industry itself creates greater automation, efficiency and costs savings particularly in the middle and back office, a game-changing disruptor could soon realise that they have the reach and opportunity to do it themselves.
"Arguably the tsunami of regulation is proving to be a double-edged sword for the industry. On the one hand, it is currently providing a buffer against disruptive brands entering the market. But on the other, it can drive up costs which will be passed onto investors unless automation and technology is leveraged better.
"Collectively the funds industry should work together to look at ways to increase automation, improve efficiency and reduce costs."
Martin Dyan or Ludo Baynham-Herd
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*This survey was carried out in March 2016 and received 125 responses from the global asset management industry, including global custodians/ fund administrators (30%), asset managers (17%), third-party administrators (24%) and insurance companies (2%) with regulators, consultants and law firms accounting for the remaining respondents (27%) and a mix of both traditional and alternative funds, including mutual funds, money market funds, hedge funds, ETFs, real estate, private equity, insurance, pension funds, unit trusts and retail funds.