Author: IIMI Admin

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History Press Releases

Jamie Carter appointed as Chairman

IIMI, an association of leading independent asset management firms, announces the appointment of Jamie Carter as Chairman, succeeding Dominic Johnson, who steps down having completed a full term as Chairman.

Susannah de Jager will assume the role of Deputy Chairman, previously held by Jamie, while Jonathon Read has been appointed into the [newly created] position of Policy Director. Both appointments are effective immediately.

Jamie Carter is the Chief Executive and one of the founding partners of Oldfield Partners (OP), a boutique fund management firm which manages circa $4 billion for endowment funds, pension funds, charities, family offices, and high net worth individuals.

Susannah de Jager is a Partner and the Chief Operating Officer of S. W. Mitchell Capital, a European equities boutique managing $2bn. She joined SWMC in late 2010 and headed up the business development team with particular focus on the US and marketing of the firm more generally until 2014 when she took on the role of COO. Susannah was made a Partner in January 2015.

Jonathon Read is Chairman and Founding Director of Your Credit Union, as well as Advisor to the Board of Civilised Investments Ltd. He is also Founder of Triborough Opportunities, a charity formed to encourage financial literacy and promote sustainable financial inclusion.

Founded in 2010, IIMI speaks for owner-managed firms concerned with the alignment of interests with clients, and aims to offer an independent, expert voice in the debate over the future of financial regulation and competition.

“First as a board member, and more recently as Deputy Chairman, it has been a privilege working alongside Dominic as he has led the NCI. The next few years will be important for the boutique asset management industry and I am looking forward to working alongside Susannah, Jonathon and the rest of the team as we seek to amplify our members’ voices and help shape the debate on financial reform and the positioning of the industry post-Brexit.”

Jamie Carter, newly appointed Chairman of IIMI

“It has been an honour working at the helm of the NCI and I am pleased to be leaving the role in such capable hands. I look forward to continuing my support of the NCI as a member of the board as we continue to advocate the vital role played by boutique asset managers in our economy.”

Dominic Johnson, outgoing Chairman of IIMI

ENDS

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Submission

NCI response to the FCA’s Asset Management Market Study Interim Report

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The UK Financial Conduct Authority (FCA) published its interim report for the asset management market study (AMMS) on November 18, 2016. Several core themes and challenges in the industry, along with proposed remedies were outlined by the regulator in this report.

The New City Initiative (NCI) engaged with its diverse membership to ascertain what it thought of the AMMS, and its proposals. The general consensus is that while a lot of what the FCA is putting forward is perfectly reasonable and in line with industry best practices, there are some areas which need to be refined.

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History Policy Papers

A New Regime for Asset Management: Why the UK should adopt a Dual Funds Regime

The New City Initiative (NCI) was formed to provide a collective voice for smaller boutique managers which were being overlooked by policymakers, regulators and to a lesser extent customers, who did not always appreciate the strong alignment of interests and risk management culture that differentiates boutiques from larger firms.

Recent years have seen waves of regulation and boutiques have shown the flexibility required to deal with this despitetheir smaller size. Post-Brexit, we operate in a world of “VUCA” – Volatility, Uncertainty, Complexity and Ambiguity. This presents challenges for all firms, but therein lies the opportunity.

The exact regulatory and competitive landscape is still to be finalised. It is therefore vital that the industry puts forwardideas and potential solutions for debate and that those responsible for shaping the agenda, negotiating terms and planning for the future, open a dialogue with all participants. In this paper, the NCI outlines how an agile and thoughtfullyconsidered dual funds regime in the UK could help firms retain EU access, but also expand and grow beyond the EU.

This regime – as the paper points out – would allow for further innovation by UK managers in a global marketplace. Fund management is one of the UK’s most successful exports, and we feel a dual regime respecting both UK and EU interests, can bring about new opportunities and be practical, proportionate and fully protective of consumer interests.

The key for all businesses, not just within financial services, is clarity and certainty, and this must be provided by the government. The financial infrastructure and regulation of the UK is so intertwined with Europe that Brexit will require time and patience to implement effectively. This paper provides one solution which could be implemented with relative ease.

Jamie Carter

Deputy Chairman, New City Initiative Chief Executive, Oldfield Partners

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Policy Papers

The Moral Case for Asset Management

It is no secret that the public despises bankers. Throughout history, the concept of banking and investing has always beentarnished with an image of individuals profiting from speculation or human misery – fund managers (especially hedge funds) ‘don’t make anything – don’t do anything’ and that ultimately our industry is one which exists solely to generate profits for ourselves with no benefit to our communities or mankind at large.

However, in my mind, it is the fund managers – these allocators of capital – who make the whole system work. Without capitalism and the difficult task of putting money to work where it will generate the highest rate of risk adjusted return – we would have had far fewer inventions, human advances, and wealth creation for society as a whole.

This paper, written by Richard Turnbull, goes into great detail as to why this is true. Fund managers provide liquidity, expertise, risk reduction and are also better structured to create the right culture of service and long term thinking. This helps fund managers avoid exactly the accusations of short termist speculation that are often levelled against us. Ourability to retire with dignity or fund new technologies depend upon our industry flourishing in the right way.

The problem with capitalism, as we are seeing with current events such as the vote against the EU by Britain, is that it means in many cases, brutal changes for those areas of the economy which cannot deliver the efficient returns. This means people’s lives change and this can be both incredibly painful and has long term social and financial ramifications too. To respond to these valid issues, a more sympathetic approach to investing which understands the effects of these changes (such as ESG investing) is now being pioneered, by the investing community and we at the NCI welcome this. This does not negate the need to generate returns for investors – but an understanding as regards the effects of our decisions is a good thing.

Finally – there is a view that the people behind some of these firms carry less moral weight than someone in a more vocational profession. We would dispute this, believing that taking thoughtful and difficult decisions to allocate savers’ funds to generate the best possible returns, is in itself both a hard task and one with an enormous positive outcome for savers and therefore society. We all need to generate better cultures and the NCI has taken a strong lead on this – but at the end of the day I believe that fund management is a powerful force for good and it is time that we started to celebrate our contribution both to global finance and the world at large.

I would like to thank Richard Turnbull for his excellent work here and for the engagement he brought to our group through the interviews he undertook and the fresh perspectives he generated via his links with the Centre for Enterprise, Markets and Ethics. His Centre has an important task ahead of it and we welcome the partnership we have formed together.

Dominic Johnson
Chairman, New City Initiative and CEO, Somerset Capital Management

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Submission

Submission to the FCA’s Asset management market review – terms of reference consultation

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The New City Initiative (NCI) welcomes the opportunity to provide comment to the UK Financial Conduct Authority (FCA) pertaining to its asset management market study. At the heart of the study is whether asset management is competitive and delivering fair value to end investors, both retail and institutional. The NCI would like to highlight several areas of concern to the FCA, and potential remedies to these issues, which will hopefully boost competition in the asset management space.

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Policy Papers

The Changing Face of Foreign Exchange

The last few years have been turbulent times for all those involved in the financial markets as they come to terms with all the changes in regulation, market behaviour and market practice. In the past, buy-side institutions such as institutional investors, pension funds, asset managers, wealth managers and private banks have tended to be immune from any turmoil. This time is completely different as the changes are more far-reaching and the upheaval is having a significant impact on all financial market participants, but it has come as a particularly major shock to the fund management industry.

Clearly there has been an increase in costs as a result of compliance with the new risk and regulatory regime. Frequently, additional resources are required to meet the extra administrative burdens associated with doing business in the current environment. Undoubtedly these do not fall fairly across the spectrum of institutions involved and become a barrier to entry for new specialist entrants.

One way institutional investors and asset managers can turn this new business environment to their advantage is in the area of FX. These new regulatory changes are a unique opportunity to upgrade their business model, their FX operational processes and improve efficiency to reduce investment costs and improve fund performance.

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Press Releases

The Changing Face of Foreign Exchange: Hidden Cost or Undiscovered Treasure?

In an opinion paper published today, IIMI looks at the current challenges and opportunities that confront institutional investors from the increased regulatory scrutiny of foreign exchange, and how these can bring direct business benefits. The full paper is available here.

FX is a necessary part of any asset management business that invests internationally and the costs associated with pricing FX transactions are often unclear or unknown. The paper attempts to quantify the extent and significance of this problem by reviewing the size and the mechanics of the global FX market and the European fund industry.

The paper also reviews the impact of recent and future regulation such as MiFID II, which is regarded as a positive influence, particularly in areas such as best market practice and transparency. The paper explores the positive benefits these could bring to institutional investors and asset managers and focuses on some of the immediate actions needed to improve the FX investment processes.

Commenting on the role of foreign exchange within asset management, Toby Illingworth, Executive Director of IIMI, said: “The pursuit of FX transparency and best market practice will deliver direct benefits to Institutional investors, most of which only use FX as an integral and necessary transaction in their investment process. It is estimated that mispricing of FX transactions comes at a cost of at least EUR1.5bn a year to the European fund industry, so by eliminating this there is an automatic and immediate uplift in fund performance and, ultimately, fee income and profitability. Clients will in turn receive a higher return on their assets and an improvement in the quality of service through better transparency and market practice.”

He continued: “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.”

A summary of the paper and its recommendations to both regulators and asset managers is provided below.

Summary

  • Mispriced FX transactions cost the European fund industry and their underlying clients EUR1.5 billion per year, on a conservative basis.
  • A conservative estimate shows that $590 billion of FX transactions related to institutional investments is at risk of being mispriced on a daily basis.
  • Recent events demonstrate there is a potential to misprice client FX transactions. It is clearly the responsibility of institutional investors and asset managers to ensure they receive the best FX pricing and best execution from their banks, at all times.
  • The London 4.00pm FIX carries too much influence and is a flawed method of execution. The interests of banks and clients are conflicted.
  • Market activity around the FIX is irrational and generates a spike in volatility resulting in an increase in market spreads. Trading FX at the London 4.00pm FIX is predominantly one directional skewing market pricing and adding a false premium to market pricing.

Recommendations

  • Regulators should communicate clearly and in a cohesive manner any new regulations and directives to the market using local associations and trade bodies as points of contact for follow up seminars and workshops.
  • Regulators should not operate a “One size fits all” methodology to impose new regulation. Differentiate requirements as to size and type of activity and use a gradual implementation process. Start with systemic risk institutions and move through the spectrum.
  • Regulators should clearly state and stick to their timelines helping to avoid confusion.
  • Investors and asset managers must review internal trading strategies and practices to comply with regulatory requirements, business objectives and best market practice.
  • Investors and asset managers should use MiFID II to improve transparency and clarity in their FX process, specifically the trading strategy and market practice with banks. Create a competitive advantage by demonstrating to clients their best interests are being protected.
  • There is an urgent need for institutional investors and asset managers to use independent FX transaction cost analysis (TCA) in their investment process. Use TCA data to make informed decisions to improve trading strategies and practices and reduce trading costs and efficiencies.
  • Investors and asset managers should access and utilise consultants with FX market expertise, experience and knowledge to maximise the benefit of new technology and trading venues.

ENDS

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Policy Papers

The Next Five Years: Regulatory Challenges That Will Impact Asset Managers

The New City Initiative was established to both promulgate our vision for better alignment between investors and money managers – but also to give positive steer to regulators and governments as to how to achieve this. This paper outlines clearly the issues confronting our industry over the coming years and where we would either draw our members’ attention to certain issues, or where we think the regulatory framework could be better structured. Wellington talked about ‘The Other Side of The Hill’ and I hope this document gives some clue as to what is in store for our firms in the near and medium term.

What we find, time and time again is that regulations designed to do one thing (make for a ‘safer world’) actually end up doing the exact opposite – normally destroying competition, making the larger firms larger and thus potentially reducing returns to investors, customer retention, and making the whole system more delicate. The powers that be have oftenmisunderstood what ‘risk’ is and how it is up to a market to price it properly. Much of their efforts to somehow ‘control’ risk, either force it into dark corners where it cannot be easily seen or reduce liquidity in a market, where the real and ultimate risk (as seen in 2008) is a liquidity crisis. We continue to argue that better structures and culture lead to better outcomes and we remain committed to the path of less regulation and more forcing of a change in how people ‘think and operate’ to achieve these same goals of managing risks and being more transparent.

Our view is to promote positive change and I hope that you will find in this paper not only a new set of worries but also a set of quite simple answers to help us make for a better environment in financial services.

Dominic Johnson

Chairman, New City Initiative
CEO and Founding Partner of Somerset Capital Management LLP

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History Policy Papers

Asset management in Europe: The case for reform

The key trade-off for any business is that of costs versus income. The issues surrounding regulation are very similar – businesses need to operate in a regulated market, but the benefits of regulation need to outweigh the costs. This premise is very relevant for the European Union project. The free trade zone initially created by the European Economic Community (EEC) and the efficiencies (supposedly) generated by a single currency, all should lead to an increase in trade, benefitting all concerned.

However, the investment management community and especially the ‘boutique’ (i.e. smaller firms) community find that the regulatory burden imposed upon us by the EU (AIFMD, MiFID II, etc.) is so expensive and onerous, that in themselves these regulations are an issue in terms of our business sector prospering. We also find that the implied benefits of an open and free trade zone are largely illusory. As companies trying to sell our products across Europe, we are constantly obstructed by an uneven application of the law, ignorance of the free trade rules, and in some cases protectionism. In this paper, this is clearly illustrated in our case studies of accessing Germany and Slovenia. The costs of the regulations in many instances outweigh the advantages.

This is a serious situation to find ourselves in, and in collaboration with Open Europe we wanted to bring a positive case for reform in Europe at a time when both the economic and political basis of the principal of Europe are coming under increasing pressure. We have laid out in this paper a clear series of changes we would like to see made, as well as illustrated the barriers we currently experience to a ‘proper’ free trade zone in Europe. We have specifically avoided trying to make political judgements, leaving that for the politicians, but we do believe that bigger, freer trade zones, properly regulated, are highly desirable for all members of the New City Initiative and we hope that our thoughts here help us achieve this goal.

Dominic Johnson

Chairman, New City Initiative
CEO and Founding Partner of Somerset Capital Management LLP

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History Policy Papers

How Regulation is Damaging Competition in Asset Management

  1. The UK SME asset management sector has traditionally been vibrant and strongly growing, but it is now stagnating, as new start-ups cannot support the financial cost resulting from increasing regulation.
  2. Boutique asset and wealth management firms find the burden of regulatory compliance increasingly onerous.
  3. New financial regulations from the EU and UK are applied equally to the very biggest and smallest asset management firms, disregarding their ability to shoulder the consequent financial and legal burdens.
  4. If financial regulation is not imposed more proportionately on large and small asset management firms, the NCI is convinced that many fewer start-up firms will come to market. This arrest of competition will damage all, but especially the consumer, as choice will become much more limited.
  5. The legal complexity of and the potential financial punishment for infringements of regulation pose massive obstacles to the growth of competition in this sector.
  6. A new ‘priesthood’ – compliance officers – has emerged from the financial crash. As the regulatory regime becomes ever-complex and continually evolves, and the scale of potential punishments so damaging to small firms, the temptation is for compliance officers to engage in ‘gold-plating’ to avoid any possibility of failure to comply.
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