Author: IIMI Admin

IIMI, the boutique asset management think tank, is calling for the development of a UK fund structure that could compete with UCITS and AIFs in Asia-Pacific (APAC), in order to strengthen the global distribution footprint of UK funds and their position in the region. The full paper, entitled “Facilitating Connectivity: Strengthening UK- APAC Fund Ties”, can be found here.

IIMI also proposes that the UK should further leverage the Mutual Recognition of Funds (MRF) scheme with Hong Kong while negotiating further MRFs with other critical markets, most notably China. In addition, the UK should become a signatory to at least one or both of the Asia Region Funds Passport (ARFP) or ASEAN Collective Investment Scheme (CIS).

Background

The UK’s asset management industry manages around £400 billion on behalf of clients in APAC. Currently, many of the UK investment products that are sold to institutional and retail clients in APAC are regulated under EU law, principally either UCITS or the Alternative Investment Fund Managers Directive (AIFMD).

Previous uncertainty about the future of delegation and the EU’s ongoing refusal to extend the much vaunted AIFMD marketing passport to core APAC jurisdictions (namely Hong Kong and Singapore) have damaged the EU’s reputation in APAC circles.

As a result, some experts see this impasse as an opportunity on which the UK can capitalise. In addition, should post-Brexit equivalence fall short in trade negotiations, the impetus for the UK to create its own fund regime and to build in mutual links with APAC, and the rest of the world, becomes greater.

Proposals

IIMI believes that there are several ways in which the UK funds industry could strengthen its distribution footprint in key APAC markets, where many of IIMI’s members see a large growth opportunity:

• UK policymakers/regulators should capitalise on the UK funds industry’s opportunity to further cement itself in APAC by developing a UK-own fund brand to compete with UCITS and AIFs in the region.
• The establishment of such a UK fund brand will require input from industry and government, and this is something the IIMI is willing to facilitate in coalition with other associations and market participants. The process of setting up this new fund structure will not be easy, but IIMI believes it is certainly achievable.
• The UK should further leverage the MRF scheme with Hong Kong, and regulators ought to negotiate further MRFs with other critical markets, most notably China.
• The UK should become a signatory to a regional fund passporting regime such as the ARFP or ASEAN CIS in order to maximise its APAC distribution footprint.

“IIMI believes the UK funds industry has an excellent opportunity to further embed itself in APAC, where a number of our members see the largest growth potential. Developing a UK fund brand to compete with UCITS and AIFs in the region would be one way of doing this, and would be beneficial for the UK and Asian economies. As the representative of leading owner managed firms in the UK and Europe, IIMI has already extended the UK fund management community’s links with APAC through the 2019 launch of IIMI Singapore, and we are keen to build on this.”

Nick Mottram, Chairman of IIMI

ENDS

IIMI, the boutique asset management think tank, is pleased to announce that it has launched operations in Singapore in response to demand from asset managers in the region.

There are 11 founding members in IIMI Singapore, which is chaired by Timothy Hay, the CEO of Somerset Capital Management’s Singapore office.

Since its foundation in 2010, IIMI has offered an expert voice in the debate over the future of financial regulation, representing independent, owner-managed firms that are entirely focused on and aligned with the interests of their clients and investors. Today, its European membership is comprised of 46 leading independent asset management firms from the UK, France, Norway and Switzerland, managing approximately £500 billion of clients’ money and employing several thousand people.

Both IIMI branches in Europe and Singapore, along with their combined membership, will work with the Monetary Authority of Singapore (MAS) and the FCA to open up and increase opportunities between the two markets as they share experiences and ideas. This includes supporting MAS efforts to develop the Variable Capital Company (VCC) fund structure, on which IIMI will hold a meeting next month with London members and a delegation from MAS.

We are very proud of what IIMI has achieved over the last nine years in promoting the values and interests of boutique asset managers, and we feel the time is now right to expand our geographical presence. Singapore has one of the most thriving asset management communities in the East and we look forward to working with the new IIMI team there as we maintain an open dialogue with both the MAS and FCA for the benefit of our expanding membership.

IIMI Chairman Jamie Carter

IIMI has established itself as a respected voice in the asset management industry and we look forward to leveraging its experience and learnings for our new IIMI Singapore members. Owner-managed, client-centric firms play a key role in preserving the stability and long-term focus of the financial sector and we are pleased to support the important work of independent asset managers in Singapore and the surrounding region.

IIMI Singapore’s Chairman Tim Hay

ENDS

IIMI, the boutique asset management think tank, has today published a paper calling for a more proportionate approach to regulation in response to increasing consolidation in the sector, which many of its members believe is reducing competition and investor choice. The full paper, entitled “M&A in Asset Management: Is it strangling boutiques?”, can be found here.

The paper explores the drivers behind the ongoing M&A activity and questions whether decisive action needs to be taken at a governmental or regulatory level. As part of this analysis into M&A trends within the industry, IIIMI spoke to a number of its diverse boutique asset manager members about the impact consolidation was having.

Drivers for consolidation

Asset management M&A has been riding high over the last few years. According to data from Mercer Capital, both deal volume and deal count in 2018 were at their highest levels since 20091. Consolidation at large asset managers has been driven by a combination of factors, including the reallocation of funds by investors into cheaper passive products, and a dramatic increase in managers’ costs. Regulations in the EU have been particularly intense for asset managers, with rules such as AIFMD, MiFID II, EMIR, UCITS V, GDPR and PRIIPs all collectively affecting fund manager margins. For many firms struggling under the weight of these complex regulations, consolidation is often seen as the best option.

It has also been noted that there are “second order” barriers. Within the UK discretionary wealth management and IFA sector, there has been huge consolidation as firms deal with regulatory complexity and look to achieve economies of scale. As a result, they advise much larger pools of capital which must be allocated to managers who can accept sizeable investments, namely those with higher capacity. The biggest managers are typically the ones who can onboard the larger flows, but smaller funds – or those that are disciplined about capacity and the liquidity they offer – cannot accept these outsized allocations. Again, this is widening the gulf between big and small.

The performance case for boutiques

If investors are unable to access as many SME asset managers, they may struggle to obtain portfolio diversification through wider exposures to niche strategies, which can also have a negative impact on returns. One IIMI member noted: “As large asset managers get bigger, performance sometimes gets worse as it is not as easy to move in and out of trades. Even if investors are paying lower fees at these large fund managers, they might not be getting the performance they deserve. Boutique asset managers can give investors exposure to niche or specialised products, which is much harder to do at larger fund managers”. Furthermore, boutique asset managers have a proven track record of outperformance, both against their largest rivals and index trackers.

“It is clear there is widespread concern among our members that continued consolidation in the asset management industry will force investors to allocate into only the largest, dominant asset managers – ultimately depriving them of choice and potentially even returns. If the UK is to have a competitive asset management industry moving forward, IIMI strongly recommends that a more proportionate approach to regulation would be a good starting point to enable boutique managers to flourish alongside their larger peers.

“These new regulatory changes are a unique opportunity for asset managers to upgrade their business model, their FX operational processes and improve efficiency to reduce investment costs and improve fund performance. That can only be good for building strong business relationships.”

Jamie Carter, Chairman of IIMI

ENDS

IIMI, the boutique asset management think tank, has called upon the Treasury Select Committee to include its representatives in any consultations and working parties associated with the Committee’s inquiry into the future of the UK’s financial services once the UK has left the EU. The full written submission, entitled “Carpe Diem: Advice and Opportunities from the Boutique SME Asset Management Sector to the Future of Financial Services”, can be found here.

The Treasury Select Committee examines what the Government’s financial services priorities should be when it negotiates the UK’s future trading relationship with the EU and third countries. The Committee launched its inquiry in January 2019 and invited stakeholders to submit written evidence in response.

Summary

The importance of SMEs to the broader economy is widely recognised. It is IIMI’s belief that its members – which are often manager or partner owned, with a distinct culture and propensity for co-operation that promotes innovation, client-focus and thoughtful risk-management practices – share characteristics, and support needs, with the broader SME sector.

The political and regulatory response to the Global Financial Crisis led to a focus on larger firms and the banking sector, and reforms implemented in response have sometimes led to unintended consequences, such as increased barriers to entry. Now that ten years have passed, and with the UK’s focus on opportunities for the future, IIMI submits that it is now time for an alternative, bottom-up approach that draws from the wisdom and efforts of the SME sector.

Drawing upon its past work, IIMI shows how its members offer a distinct and important contribution to the debate about the future of financial services, concluding that any consultations and working parties must include their representatives to give the optimal outcome for the broader economy and society.

The Unique Perspective of Boutique SME Asset Managers

IIMI’s submission provides proposals for the future direction of financial services through the lens of boutique asset managers, with a focus on the following areas:

• Alignment of interest, culture and performance
• Liquidity transformation
• Broad-based innovation and the power of clustering
• Stewardship and patient capital
• Proportionality and incubation in regulation

“Boutiques, such as NCI’s members, are the SMEs of the asset management industry and are an important cluster of such activity for the UK and global economy. They promote innovation in the broadest sense – with corollary benefits for society – through economic growth, employment and global trade in services. As such, NCI believes that government and regulators best serve their broad constituencies by recognising and listening to the perspective and proposals of boutique firms: our members certainly welcome the opportunity to contribute to the debates ahead.”

Jamie Carter, Chairman of IIMI

ENDS