No Country for Small Asset Managers08.15.2016
Regulatory changes will lead to the concentration of assets in larger European fund managers according to consultancy Opimas who said they look to the east of the region for growth.
In a report, “The European Asset Management Industry: No Country for Small Managers”, Opimas said the pan-European “distribution” passport, authorized by regulators in AIFMD and Ucits V, is likely to drive more concentration of European assets within the leading Tier I firms as smaller asset managers cannot afford to build distribution across the region. In addition, MiFID II, the incoming regulations covering European Union financial markets from 2018, will restrict paying commissions to fund distributors, which will be an onerous burden for smaller firms.
“Asset managers have historically focused their attention and resources on generating alphas for their investors, without bothering to refine their strategies,” said the report. “This approach will not be sustainable post-2017 when MiFID II is implemented and the risks will grow as additional rules gather force and the full fury of pan-European competition is unleashed.”
The report was written by Axel Pierron, co-founder and managing director at Opimas, where he leads the market structure, asset management and fixed income currency and commodities practice.
Pierron told Markets Media: “It will be difficult for Tier II firms to expand as they have traditionally not had strong marketing or sales, which will need to be developed.”
In contrast, the biggest players have the marketing resources to expand in new markets. Opimas built a matrix to identify the markets with the most opportunities using the last three-year measure of assets under management compound annual growth rate and the overall value of the assets under management and the assets per capita. According to the matrix Italy is potentially the most attractive market and Spain is the most attractive market for retail funds. However, these are two markets are very competitive.
“Eastern markets are nascent, compared to Italy and Spain where competition is much more fierce,” said Pierron.
Opimas predicted that Tier I asset managers operating in western Europe will syphon away business from their smaller eastern European competitors, where they are already entrenched. The report said assets under management in Bulgaria and Romania have increased by close to 25%, and in the Czech Republic by over 20% in the past three years.
“Eventually, confirming the theory of absolute advantage presented by Adam Smith in “The Wealth of Nations”, the major markets will become the center of an expanded European asset management industry with only a few niche players remaining in the smaller countries,” said the report.
Pierron expects some consolidation amongst the smaller firms, provided that prices are agreeable. He predicted they will become specialists in certain industries or markets or launch algorithmic platforms.
“For numerous small Tier III asset managers the changing climate might be fatal,” said the report. “In increasingly competitive markets, those who will survive are the ones that will focus on their core expertise (e.g. providing liquidity in specific types of investments), or move into niche markets (e.g., socially responsible investing). Alternatively, they might shift their business model and become service providers (e.g., developing an advisory service, focusing on distribution in certain niche markets) to the titans and other players.”
More on asset management:
Net sales registered net outflows of €3bn, compared to €42bn in March 2022.
Justin Chapman will lead the Digital Assets and Financial Markets group.
BNP Paribas Asset Management launched its first European ESG ETF Barometer survey.
By Greta Zhou and Andy Cheung, APAC AES, Credit Suisse
The ETF provides a way for investors to potentially profit from a decline in the price of bitcoin.