More than half (53%) of boutique asset management firms identified ‘institutionalization’, including the increasing expenses related to regulatory compliance as the greatest barrier to entry in the fund management industry, according to a new report by TABB Group and SunGard.
The report entitled "Boutique Business Model under Attack: Bruised by Regulation – Crippled by Costs?" has revealed that 51% of those surveyed find the institutionalization burden of due diligence and compliance as creating a barrier to entry.
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The research has found that small and boutique asset managers are facing increasingly large regulatory hurdles in the wake of the global financial crisis and with new transaction requirements arising from the Stronger Super reforms that could force many of them out of the game.
This currently ranks as the top barrier to entry, moving last year’s top entry, the general cost of setting up operations, to the second spot at 44%.
The report said the impact of the regulatory environment is greater on smaller firms who do not have the benefit of scale to dilute upgrade costs across the business.
Adam Sussman, partner and director of research at TABB Group, said: "Growing operational and regulatory minimum requirements such as AIFMD, Dodd-Frank, and UCITS IV/V are leaving many boutique asset management firms unable to take part in the mandate process.
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By GlobalData"Scale is the feature that boutiques believe they lack, and technology and better operational efficiency is the key to achieving increased scalability," he added.
More than two-thirds of respondents to our survey of 202 asset managers agree that there is a Big Squeeze occurring: the big get bigger, smaller firms prosper in a niche and the middle shrinks," said TABB Group’s Adam Sussman and Valerie Bogard, who authored the report.
Ed Lopez, executive vice president at SunGard added that these smaller firms should invest in technology, improve their operational efficiency, and look at outsourcing any function that does not relate to their core competency of investing.
