Category: Press Releases

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

IIMI, the boutique asset management think tank, reveals, in a member survey published today, that almost double the number of member firms are incorporating environmental, social and governance factors (ESG) into their portfolios, compared with five years ago. The results of the survey are included in IIMI’s paper: The Evolution of ESG in Asset Management, published today.

SUMMARY OF IIMI’s ESG SURVEY RESULTS

• Five years ago, 47.6% incorporated ESG in their portfolios – today the figure is 90.5%
• 85.8% plan to further incorporate ESG factors
• 90.4% are or intend to sign up to the UN Principles for Responsible Investment
• Biggest driver behind adoption of ESG in portfolio decisions is risk management
• Just over half of respondents concerned about the EU’s ESG regulatory proposals
• All respondents agree that ESG should be industry-led rather than driven by regulators

“Our survey suggests ESG considerations are already firmly embedded in decision-making process and that a dramatic shift has happened in the past five years.

It is obvious however that the sheer variety of approaches to and interpretation of ESG has led to increasing debate in the industry and confusion amongst potential customers. With the European Commission’s announcement that it will step in with regulation, we felt it was important to sound out the view of IIMI’s members – specialist, independent, owner-managed boutiques.

The results of the survey and analysis of recent developments, including ESMA’s announcements in relation to ESG in December 2018, have informed a number of recommendations.

Firstly, The EU’s reporting requirements need to ensure they do not contradict or duplicate existing obligations such as those outlined in the TCFD. This will do nothing but confuse clients. A better solution could be for the industry to self-regulate and adopt one of the most comprehensive standards like TCFD on a universal basis.

Once the relevant Directives are in place, IIMI encourages ESMA to publish a regular summary of what it considers to be best practice under the principles-based approach, to encourage greater harmonisation and higher standards across the industry.

ESMA confirmed it will not adopt a prescriptive approach to ESG regulation which is a welcome announcement. However, the IIMI membership is unanimously opposed to ESG becoming an issue driven by regulators, instead preferring industry-led initiatives to support the development of sector standards.”

Jamie Carter, Chairman of IIMI

ENDS

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