Boutique firms face further pressure as a result of MiFID II implementation as the rulings are pushing larger pools of money to fewer managers, and could lead to further consolidation throughout the asset management industry, it has been warned.
Goldman Sachs Asset Management's head of international retail client business Nick Phillips said his firm has seen evidence of an increase in the number of mandate being outsourced to the firm - it has won eight over the past six months - and this is a trend likely to gather pace a result of the Markets in Financial Instruments Directive II (MiFID II), which came into force in January.
Speaking to Bloomberg, "MiFID II is increasing the volume of sub-advisory business in Europe," said Phillips.
He explained distributors such as banks, wealth managers and investment platforms are "looking at their business model, saying how can we get better products to clients and have the best fund managers by consolidating them?''
MiFID II rules are designed to improve transparency for investors and ensure they are getting value for the fees they pay, but in a bid to limit compiance costs fund distributors can merge assets in similar funds into one strategy that are under the distributor's brand but sub-advised by a third-party manager.
As a result, fund distributors are likeky to reduce the number of products in their offering and increasingly pass larger pools of money to fewer managers as they push for lower fees.
"Inevitably, there will be losers," Phillips told Bloomberg.
Boutique firms have already been under pressure as a result of MiFID II as some have struggled to absorb research costs. Crux Asset Management was forced to increase fund fees earlier this year as it continued to charge clients research - MiFID II required research payments to be separate research costs from trading costs and allocate a research budget.
Much larger firms were able to absorb the costs without passing on to clients.
This comes at a time when the industry has already seen significant consolidation including the mega-mergers between Janus Capital and Henderson Global Investors, Aberdeen and Standard Life and most recently Federated Investors announced it was to buy Hermes Investment Management.
In addition, it is also likely to re-raise the question of high concentration in a small number of large funds, an issue previously highlighted as a concern in the Financial Conduct Authority's Asset Management Market Study.
Considering adding Income Focus fund
Industry Voice: Two decades of experience have shown us that deploying an ESG focus is entirely complementary to long-term performance goals.
Russ Mould, investment director at AJ Bell, looks at four contributors to the upward march of the FTSE 100.
Next stage of development
Poor practice highlighted