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Local investment managers remain bullish

03 August 2006 Angelo Coppola

The latest PwC Global Investment Management Survey shows some interesting trends, and follows their first survey three years ago.

Pierre de Villiers, PwC leader of the investment management and real estate unit says that globally the investment management sector will face some challenges but they remain bullish about revenue growth, expecting in the region of 20% over the next three years.

Mark Classen the actuarial specialist at PwC in the investment sector mentioned that distribution was one of the key elements identified as a critical success factor.

The market is going to get more competitive, and there may be some consolidation as was seen in the insurance sector. Money making skills are key, and marketing skills will also come to the fore.

According to De Villiers, their survey covered 80 investment management organizations with assets of around $9 trillion, including 20 local asset managers, and those CEOs interviewed say that there are several challenges they face: portfolio management, product development, distribution, and cost of compliance, risk management and remuneration.

Drilling down slightly the local CEOs identified the recruiting and retaining the best employees, as a key industry challenge in the future, followed by the scalability of their existing platforms, technology developments, and to a lesser extent additional customer reporting requirements.

The local managers highlighted one of their three key objectives as being increasing the distribution of their existing product range into existing markets, while people retention and entry into new markets followed.

The regulatory environment was also analysed and it appears that most asset managers believe that the regulators are out of touch with the current business environment and its demands. The majority did agree that the industry was comprehensively regulated.

On the other hand they also say that there is an inconsistent application of regulation within their sector, although they do admit that increased regulation has improved consumer confidence. Internationally there is far more pressure on the managers than there is currently in SA.

The age old debate of performance and the winning and loosing of mandates was also highlighted. Two of the main reasons given for winning mandates were past performance and the investment process quality. Past performance was also one of the main reasons that mandates were lost, and to a lesser extent the investment process quality also led to some losses.

Interestingly enough it appears that brand image, product innovation and price, to a lesser extent also played a role. Claasen wondered how one goes about creating a brand in the asset management space?

On the retail front investment performance led to increased sales, as did the quality of distribution arrangements and brand image played a role. In terms of decreased sales investment performance played a role as did distributor remuneration and the breadth of the product range.

Andre Swart at PwC says the issue of outsourcing was also raised with the South African respondents saying that their expectations had been generally met, although there was some disappointment in some areas, with most agreeing to outsource their back office functions and maintaining their front facing functions. Client reporting, finance and investment reporting were the three areas highlighted.

Outsourcing was also seen as a business imperative. Investor admin and servicing and fund accounting were the key areas, while many said that they wouldn't go off-shore. SA is a lower cost base than what would be found internationally.

Having said that the market for offshore business, locally will happen indirectly via third party providers, although there is some competition coming from the Far East, says Swart.

Turning to GIPS - half of the South African asset managers surveyed said that they had adopted Global Investment Performance Standards (GIPS), 10% had adopted the local version, with 35% saying that they hadn't, but planned to do so in the future, with a significant portion of their international compatriots (11%) saying that they didn't plan to adopt GIPS at all.

On the question of compliance and risk management for the local investment managers, there appears to be a positive response in general, with improvements needed in the chief compliance office function, the oversight of outsourced relationships, and compliance with investment management contracts.

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