Category: Submission

The active asset management industry was the subject of a tough interim market study by the UK regulator – the Financial Conduct Authority (FCA) – in November 2016. At the time, many in the industry interpreted the AMMS interim report as suggesting that the FCA had a preference for lower cost passive fund products such as exchange traded funds (ETFs) and index trackers compared to active management.

New City Initiative (NCI) was reassured to read in the final FCA AMMS report that the regulator clarified its position on this matter, stating that it was never its intention for there to be any preference for passive products. This was a very welcome development for

NCI, which had pointed out in its response to the AMMS report that passive products – whilst having a place within some investor portfolios – were not without flaws.

Although offering lower fees, NCI highlighted that passive products are more exposed to equity market corrections than active management. We also articulated that while passive funds had delivered strong performance, these returns had been generated in highly favourable macroeconomic conditions (i.e. a 10-year equity bull run).

“The obvious benefit of active management is that it gives asset owners the opportunity to generate returns above and beyond the market. Good active managers can do this by applying thoughtful insight into market dynamics, an ability to identify discrepancies in the wider universe of opportunities and through effective execution. These elements are not something which passive providers can offer,” said an emerging markets equity manager.

The general tone of the FCA’s latest paper was positive and pragmatic and many in the active management community welcomed the decision not to refer the industry to the Competition and Markets Authority (CMA). “My outlook on the final report was that it was far more of a comforting read than the interim publication. It appeared far less antagonistic, and was broadly fair in what it was saying,” said an NCI member. Another NCI member concurred. “By and large, it was a very comprehensive report,” he said.

In this paper, NCI outlines its recommendations in response to the main points raised in the FCA report. As part of this paper, NCI has consulted with members that represent different investment management strategies, encapsulating the diversity of our constituents, in order to obtain their feedback on the FCA’s report. This paper has been submitted to the FCA.

Jamie Carter

Chairman, New City Initiative Chief Executive, Oldfield Partners

New City Initiative (NCI) is comprised of leading independent asset management firms and offers an independent, expert voice in the debate over the future of financial services; its over fifty members collectively manage around £500 billion of assets. Predominantly owner- managed, NCI’s members align their interests with their clients’ in a transparent manner and, more broadly, seek to encourage competition, innovation and consumer choice within the UK asset management industry.

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.

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.

Dominic Johnson is one of three speakers who bring their theological, academic and practitioner perspectives to explore the ways in which we relate to money. How has the role and importance of money changed in recent years, is it now an idol, and have we become slaves to it?

Speakers:

The Rt Revd Dr Peter Selby – Former Bishop of Worcester and Author.

Dominic Johnson – Chair of New City Initiative and CEO, Somerset Capital Management.

Ben Dyson – Founder of Positive Money. Chaired by Barbara Ridpath, Director of St Paul’s Institute.

This event was recorded at St Paul’s Cathedral, London on 28th October 2014.