The European funds industry might face additional costs totalling between US$300 million and US$500 million per annum over the next three years to deal with new regulatory requirements, according to a study by BNY Mellon in colloboration with EY.
This translates over the next three to five years into a conservative’ 3%+ increase in cost/income ratios correlated to a 2%+ uplift in total expense ratios.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The study entitled ‘The Impending Profitability Challenge for European Fund Managers’ features the increased pressures on firms as compliance costs rise and investors demand cheaper products.
The study reported that these pressures may lead to increased consolidation of asset management firms and create significant barriers for small firms to entry, while the larger fund managers will benefit from offering multi-asset products and their robust risk infrastructures.
According to the study, with the top 20 fund management houses gaining market share, there is a apparent change in asset balance, with passive funds and ETFs growing at twice the rate of active funds.
Other key findings of the study include:
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData- A comparison of the global fund management industry since pre-credit crunch shows that assets under management have recovered, there are more independent fund managers, and the top 20 list of fund managers is US dominated in terms of ownership
- Banks are expected to continue to sell their fund management businesses and it is likely that large independent fund managers will continue to acquire them
- increasing barriers to entry related to the regulatory and accountability framework, specifically in relation to the cost of implementation, have started to deter start-ups and force consolidation at the bottom end of the market
- The focus on the transparency and governance agenda from both regulators and investors will inevitably exert downward pressure on fees
- The downward pressure will apply particularly to the ETF segment, where average European fee levels are similar to those of passive funds and falling at an average rate of 1% per annum depending on the instrument
- Both investors and regulators exhibit a growing thirst for passive funds, and as a consequence these funds are growing at twice the rate of active funds, resulting in margin compression
Daron Pearce, EMEA head of global financial institutions at BNY Mellon, said: "There are a multitude of initiatives that fund managers could consider in the face of falling profitability and rising costs/income ratios. These include reconsidering the opportunities of long term restructuring and building partnerships with third party providers for middle and front office functions."
