State Street Corporation today released the latest of its Vision Focus reports which identifies trends within the European investment management sector. Entitled, “The Changing Shape of European Investment Management,” the report examines the wave of new regulation worldwide and its impact on business practices and operating models.
According to the report, regulatory efforts have shifted from enhancing market efficiency to matters of investor protection, reflecting market-wide calls for improved transparency and investor security. The asset management industry is in an evolutionary phase as a result of increasing regulation. With the implementation of initiatives such as the MiFID II Review, UCITS V, the European Commission’s review of package retail investment products (PRIPs) and the review of the Investor Compensation Scheme Directive (ICSD), the regulatory goals are clear but the long-term impact in terms of competitiveness, operational efficiency and investment performance are still uncertain.
Marty Dobbins, managing director of State Street in Luxembourg commented, “The challenge for asset managers of all sizes will be to stay focused on their core business of building successful investment portfolios. It will be easy to be distracted from this given the volume of emerging regulation. We are working closely with clients to guide and assist through the significant regulatory and investor-driven change that confronts them.
“Asset managers are looking for servicing solutions that are consistent across Europe and that can successfully navigate the regulatory complexity at both a regional and local market level. Unfortunately amid this wealth of emerging regulation, there will be winners and losers, and their identity will determine the future shape of the European investment management industry,” Dobbins concluded.
The paper also explores how regulation is likely to have a major impact on future product development. Mike Karpik, senior managing director and head of Investments for State Street Global Advisors in Europe, the Middle East and Africa, commented, “Product development teams will need to collaborate closely with their risk and compliance counterparts to ensure that new products are compliant, workable and fit for market. The marketing of alternative-style strategies under the UCITS brand, a trend which could be accelerated by the AIFMD, is serving to bring hedge fund-like vehicles to a greater audience, although this will not be without greater regulatory scrutiny and a requirement for more investor education. Asset managers will need to be highly cognisant of the type of investor they target.”
State Street’s Vision Series addresses key trends and developments impacting the financial services industry. Previous reports have focused on technology innovation, pensions, UCITS IV, exchange-traded funds and sovereign wealth funds. To download a copy of this Vision Focus report or others in State Street’s Vision series of in-depth reports, please visit www.statestreet.com/vision.