Ability to deal with complex regulations is shifting geographical focus from Dodd-Frank in US across to Europe with financial transaction tax and MiFID II has been seen as primary concerns for 2015, according to a report by TABB Group.
More than 40% of global asset managers surveyed informed TABB Group that onerous, labour-intensive and time-consuming regulations are the main factor that could make or break a boutique asset management firm’s ability to expand their footprint geographically or product range. As a result, traditional business models are being threatened but new opportunities are emerging.
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Having differentiated themselves from the asset management goliaths, boutique asset managers now face more regulation in the form of MIFID II, AIFMD, MAD and EMIR in 2014, creating significant hurdles to be overcome, says TABB Group Europe senior analyst Rebecca Healey, who wrote "The New Boutique Asset Manager: Transparent, Efficient & Accountable."
"Understanding and staying ahead of global regulation is becoming a gargantuan task with the increasing cost of regulatory compliance delivering stark choices – either rein back to core expertise to ensure minimal unnecessary risk or shift to new investment models such as tangible goods to focus on absolute returns."
On the positive side, however, 76% of those surveyed are now looking to technology providers to help them focus on compliance and regulatory trade reporting to service their needs, as well as limiting risk exposure and managing existing resources more effectively.
As many as 58% cite technology as assisting their ability to expand their product offering or geography, enabling smaller firms to capitalize on their agility, providing the ability to punch above their weight in terms of geographic reach and scope.
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By GlobalDataAccording to Healey, this offers third-party providers an opportunity to deliver cost-effective solutions. "As outsourcing becomes mainstream, competition increases, driving down costs and delivering new user-friendly solutions. This offers solutions to more complex issues such as sophisticated customer relationship management and increased demands for more in-depth transaction cost analysis."
She goes on to explain that as regulators and end investors require more transparency and accountability, only fully automated front-to-back office processes will deliver the regulators’ required transparency in a timely manner. The more that asset managers choose to work with trusted partners to meet compliance obligations, an increasingly efficient and adaptable industry will be created, ready to meet the renewed appetite for actively managed funds.
Operational stability is now viewed as a key factor in ensuring boutique asset managers not only attract assets but maintain them, says Healey. "The divergence of investments within the new global regulatory framework will require cost-effective solutions in hosted enterprise-wide vendor offerings that can fully integrate trading, risk and operations."
