Political Risk Weighs on Buy Side


If preparing for MiFID II January 2018 deadline did not challenge asset managers enough, recent geopolitical and policy changes have become the top disruptors for money managers, according to the findings in Linedata’s seventh annual Global Asset Management & Administration Survey.

Approximately a quarter of the respondents (24.2%) cited the unexpected changes in international relations and national leadership as the greatest potential disruptor to their businesses over the next 12 to 18 months.

“The Brexit vote, the election of Donald Trump, and the possibility of a swing towards right-wing populism in a host of European nations have become the year’s defining trend in the eyes of asset managers across all geographies,” wrote the report’s authors.

Before the 2017 survey, political change never appeared as a concern in previous surveys, noted the authors.

“The political uncertainty seems to have quite a few shaken,” said Gary Brackenridge, Global Head of Asset Management at Linedata. “Political uncertainty did capture people’s attention, but the focus we see this year is operational efficiency in the US marketplace driven by massive flows into passive fee products. While in Europe, the focus is heavily skewed to regulation (MIFID II). The first point is somewhat unexpected; the second point is not unexpected.”

After politics, respondents cited new technology, such as machine learning and artificial intelligence (13%), and the application of technology for cybercrime (18%) and new intermediation models like robo-advisors (12%) as the next greatest disruptors to their businesses.

Although politics and technological change continue to disrupt the operations of asset managers, “adapting to regulation” remained the top challenge for 2017, according to half of those surveyed.

Not surprisingly, when survey participants ranked the most important areas in which they plan to invest their IT resources in the next 12 months, middle-office systems, reporting, regtech, and compliance topped their lists.

However, when it comes to the core business of asset managers, only respondents from North America and France listed “investment performance” as one of their top three concerns. Similarly, “attracting new assets” landed among the top three concerns only for respondents from Asia-Pacific.

Asset managers also no longer view client services (17%) as the greatest differentiator between firms, according to those surveyed. Instead, it has been replaced by “product offering/unique investment strategies” (25%) and being a “trusted partner” (21%).

“The key takeaway is that disruption has truly arrived in almost all market segments and regions,” said Brackenridge. “The drivers are different (regulation vs fee compression) but the result is the same.”

He predicts that asset managers will spend the rest the year transforming their operating and business models to be better positioned for the future regardless of segment, location, strategy, and etc.

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