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The Challenges of the Asset Management Industry in a More Complex Scenario in the Markets and for Businesses

The recent event focused on the asset management industry, organized by the Association for Progress and Management (APD) and Inverco, brought out interesting conclusions about the health of the sector, the concerns that affect the industry, and the challenges it has to face. With an attendance of over 650 people, the event welcomed regulators, small, medium and large managers, advisory companies, and the media.

Figures

The figures show that the sector has continued to grow, driven both by the favorable market scenario to date and the changes introduced by Mifid II.

Since 2008, the industry has gone from AUM of €232 Bn to the expectation of reaching €472 Bn at the end of 2019, more than double. Only this year, the AUM has grown €10 Bn. And the number of participants has already reached 15 million. The average return of the funds in any category in Spain is 5.34%, considering the low interest rates.

Currently, there are 119 IIC management companies registered in Spain, four of which have been created this year. A total of 1.9 million retail customers have contracted advisory services, and 1.3 million have sought out discretionary management. The AUM, in both, amounts to €75 Bn, generating revenues of almost €600 million euros.

Concerns

One of the industry’s concerns is the new economic scenario. Uncertainties arising from the US-China trade war or Brexit; the very low interest rates that have reversed the curve and caused negative returns on some bonds; and the expectations of deceleration, will challenge managers to solve problems like maintaining the current levels of profitability and growth.

Another concern, also shared by regulators, is the impact of regulatory changes related to customer information about markets, as well as the transparency of information on revenues and expenses. Additionally, income reduction due to changes in regulations regarding incentives is another shared concern.

The CNMV regulator admits that more progress has been made in regulations. The regulation of omnibus accounts, sending information remotely to participants, reducing the capital necessary for the creation of entities, the reclassification of customers, sending analysis reports to customers, and the establishment of criteria to limit fund underwriting, are measures that have already been implemented.

However, all this has led to extra effort for management companies, which «weakens the operators’ business expectations» as the CNMV Vice President herself acknowledged in her speech.

Challenges

To face this complex scenario, industry representatives pointed out several challenges they are facing, with the view of preserving their business models.

The first is to maintain customers’ trust, this will help maintain the products’ level of profitability in a scenario of low interest rates and worsening the expectations of the cycle. The regulator reported on behalf of its efforts that have been carried out to preserve liquidity in the portfolios of investors, through strict monitoring and supervision of control procedures, surveillance measures, stress tests, and contingency plans.

The second is to defend against the narrowing margins caused by higher expenses and lower revenues. The CNMV, on the other hand, explained the measures taken for the correct selection of financial intermediaries by management companies, and to expedite the authorization procedures for new operators. Despite this, the managers believe a process of concentrating operators will be feasible in the short and medium term.

The third is to approximate the size and trends of the manager-client relationship in effect in the Spanish market towards the other European markets’ trends in our environment. The industry is committed to expanding the diversification of the assets it invests in – an example would be the expansion of vehicles that invest in real estate assets – and to maximize the possibilities of digitalization as a tool that facilitates efficiency in the models of distribution.

The last challenge is to reinforce the implementation of ESG criteria in the management of investment vehicles to increase competition. There is a long road ahead in this field, since as recognized by the CNMV itself, as of June 2019 there are only 17 solidarity funds registered, and 37 funds managed with ESG criteria, which accumulate AUM for €2 Bn.


 

Javier Ferrer
Director of Financial Communication at Proa Comunicación

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