Arun Sarwal, CEO and Paul Poletti-Gadd, chief solutions officer at Broadridge Fund Communications Solutions give their views on how the investment industry will shape up in 2021.
Continued asset management consolidation
We expect to see further asset management consolidation in 2021, as cost pressures on investment houses continue to rise, against a backdrop which sees plenty of liquidity looking for a home.
It's tough out there, with investors putting pressure on fees and operating expenses continuing to rise, in no small part due to ever increasing regulatory requirements.
Asset managers have already turned to mergers and acquisitions in recent years in a bid to achieve greater scale. In the US alone, overall disclosed deal value during the first half of 2020 was $19.7bn.
In Europe, these deals included Morgan Stanley's multi-billion dollar acquisitions of E*TRADE and Eaton Vance and Franklin Templeton's $4.5b deal for Legg Mason.
But these pressures have not gone away. In fact, the top 10 asset management companies hold just a 35% share of the $90trn market, Morgan Stanley said in a research report in October.
While the market remains fairly fragmented, the expectation is that only half of the fund industry's current asset management companies will still exist by 2030 according to Piper Sandler.
M&A activity will gain further momentum this year – market reports are already suggesting the possible tie of State Street and UBS and there is speculation around Invesco and Janus Henderson.
Be on the lookout for big deal making as we navigate through 2021.
No divergence of regulatory reportingHow much will UK regulations diverge from the EU after Brexit? That's the million-dollar question, but regarding regulatory reporting in particular, we think the answer is "not much".
Divergence in reporting requirements simply does not make any sense. Scale and efficiency rule supreme and there is no great value in creating separate reporting regimes beyond what already exists.
So, while there is likely to be a lot of noise around regulatory divergence, we predict few changes to the European fund regulations for which we support our asset manager clients.
After all, we have already seen the UK begin-shoring EU regulations in the run up to 31 Dec 2020, and for the most part, fund related regulations have been on-shored in full.
There are notable exceptions. For example, the UK have said they want to delay the requirement to produce a PRIIPs KID for 5-7 years, keeping a UCITS KIID.
This is an area we will be keeping a close eye on though and our clients can be certain that through our solutions, they are future-proofed come what may.
More change in platform ownershipAfter years of quite staggering growth in both the number of providers and assets administered – from £250bn in 2013 to £500nn by the end of 2017 alone according to BNP Paribas – the platform market has long been a prospect for consolidation.
And the gears are most definitely grinding now. Custodians and banks are increasingly taking an interest in fund platforms.
We have already seen, for example Clearstream acquire a majority stake in UBS's fund distribution platform Fondcenter AG, a deal which completed in September.
And after the completion of a strategic partnership in 2020, French bank BNP Paribas now holds a 22.5% stake in wealth management platform Allfunds.
Platforms are looking increasingly attractive to banks, providing ready-made technology, and greater scale and breadth of their fund offering to clients. As we all know, platforms are a scale game and once consolidation starts it creates a momentum.
Also, alongside the quest for scale, there may be opportunities for new platform operators to step into the market.
Either way, the market is changing – watch this space.
ESG reporting will and must be standardisedThe rise of ESG investing shows no signs of slowing down and is sure to have another huge year in 2021.
For example, PwC forecasts as much as 57% of mutual fund assets in Europe will be held in funds that consider ESG criteria by 2025.
ESG is one of the most complicated concepts in the investment world and as BlackRock has recently pointed out, ESG funds are governed by an "alphabet soup" of standards, with various reporting frameworks and competing initiatives.
So, there can be little doubt that globally recognised standards are needed. As well as helping investment houses, this would provide a better outcome for end investors.
Such is the enormity of the ESG market and pressure for change that we hope to see significant progress towards better standards next year, and the adoption of standardised reporting is certainly something we will be monitoring closely.
Drive to consolidate service providersHow many different service providers does your company depend on? The answer is increasingly likely to be "a lot". From regulatory reporting, to back office funds administration, to some IT functions – the list goes on.
In fact, no part of a firm today is untouched by outsourcing in some shape or form. Large firms now rely on growing numbers of service providers, many of them with their own specialisation.
It becomes even more complicated when your business operates across several jurisdictions.
But outsourcing to so many different providers becomes costly and complicated. The management of proliferating relationships and related SLAs is creating a significant overhead in itself.
So, amid growing cost pressures on asset managers, expect to see a major drive from them to reduce service providers in the next 12 months.
The result? Niche outsourced service providers will be challenged, as companies seek to work with service providers that can provide multiple solutions harnessing the efficiencies that this affords.
Meanwhile, those outsourcers that can provide a full suite of solutions must continuously invest in their capabilities to respond effectively to growing demand.
Arun Sarwal, CEO and Paul Poletti-Gadd, chief solutions officer at Broadridge Fund Communications Solutions, give their views on how the investment industry will shape up in 2021.
Arun Sarwal, CEO and Paul Poletti-Gadd, chief solutions officer at Broadridge Fund Communications Solutions, give their views on how the investment industry will shape up in 2021. We can all agree that...