There has been no shortage in terms of volume and “action” in financial services industry news for this last quarter.
From concerns of skills shortages to the implementation of GDPR, the investment management community has had a lot to prepare for and react to, and with fears of a global economic slowdown combined with threats of a trade war, there will be plenty to talk about for Q3, regardless of outcome.
In case you missed anything or need a refresher on the latest events related to financial services, we’ve provided an extensive list of what’s happened in this last quarter of 2018.
Finding employees with the necessary talents and skills is the number one concern for half of financial services leaders, according to new research by staffing firm aRobert Half. Training and development of existing employees is the fourth highest concern, cited by a third of respondents, while staff retention was a worry for more than a quarter.
The research reinforces similar reports that financial services is nearing a skills shortage crisis – suggesting firms will need to adopt more flexible and innovative policies to meet their staffing requirements.
The ranks of hedge fund managers expecting impending market chaos are growing, according to Bloomberg.
A growing chorus of investors predict an end to the decade-old rally in asset prices, as central banks move to normalize policies and the rise of populism threatens trade across the globe.
With political and market unpredictability on the rise, and margins and profits already under pressure, it is vital hedge fund, wealth and asset managers maintain a tight grip on those issues they can control: investment risks, counterparty exposures, and costs.
The average asset-weighted fee paid on US mutual funds and ETFs fell 8% last year to 52 cents per $100 invested, according to a report from Morningstar.
The report found the cheapest 20% of funds attracted almost $1 trillion in fresh customer cash in 2017, while the rest of the industry suffered net outflows of $250 billion.
Hedge funds are facing similar fee pressures. At the same time, additional margin costs of as much as 70% set by clearing houses in response to regulatory changes would lead to severely reduced returns.
As the squeeze continues, investment managers of all stripes will need to redouble their focus on reducing costs wherever possible if they are to protect their profitability.
Citigroup’s investment bank has suggested it will shed up to half its 20,000 technology and operations staff in the next five years, as machines take over ‘lower-value tasks’ from humans.
The news from Citi underscores the wider technology and cost realities taking place across the financial services industry.
Increasingly, it is those firms that are most successful in automating their middle- and back-office operations – whether by leveraging emerging technologies, or through more flexible and efficient operating models – that will gain significant cost and competitive advantages. Institutions that lag behind will need to embrace change if they are to survive.
A recent Hedgeweek Special Report examines the latest technology solutions available to asset managers to help them with their reporting, data management and performance attribution requirements.
In the report, Eze Software claims that technology is becoming an increasingly important factor when hedge fund managers present their investment strategy – the more agile and sophisticated the technology infrastructure, the more appealing the manager will appear to prospective investors.
In the same report, SS&C Advent notes how the flexible deployment of technology using cloud-delivered solutions and hosted services is helping provide smaller managers with the latest industrial-strength technology tools and analytics, levelling the playing field within asset management.
A survey of senior buy-siders by BackBay Communications and Osney Media found 76% have already automated or outsourced at least some compliance functions, but most asset managers intend to increase that over the next five years. Regulatory budgets are also expected to grow.
Robotic process automation, and machine learning or artificial intelligence were identified by 30% of respondents as having the biggest impact on compliance in the future.
Post-crisis regulations aimed at dismantling the cult of ‘too big to fail’ have increasingly resulted in firms that are ‘too small to comply,’ or that simply can’t get off the ground, argued Select Vantage Principal Daniel Schlaepfer in a recent article published in New Europe.
The cost of regulation, he says, is becoming an existential problem for small- to medium-sized firms.
In response, smaller firms will need to seek out alternative operating and outsourcing models that can help them limit their costs, while ensuring they can meet their compliance obligations.
Plenty of column inches have been devoted to the costs of GDPR and the challenges of complying. But what of the potential advantages?
In this article, GDPR and business transformation consultancy Fileom highlights the top five benefits.
Many firms are caught between allocating resources to develop the necessary infrastructure to be ready for the EU’s Securities Financing Transactions Regulation (SFTR) when it goes live next year, or continuing to focus on MiFID II.
SFTR’s transaction reporting demands will require firms to report details of their repurchase agreement, securities lending and margin lending trades to a registered trade repository.
The article warns that SFTR impacts a wide-range of investment firms across areas such as businesses processes, controls, operations, IT systems and compliance. Industry participants therefore need to ensure they are prepared for SFTR, rather than take a ‘wait-and-see’ approach.
eVestment’s Alternative Fund Administration 2018 survey found 76% of alternative fund administration firms expect consolidation in the alts fund admin space in the near term. The figure is up dramatically on 2017, when 47% expected consolidation.
There were 16 M&A transactions from January 2017 through March 2018. This follows 13 transactions the year before, and nine the year before that.
Apex Group’s acquisition of Deutsche Bank Alternative Fund Services is the latest to complete. The acquisition, along with those of M M Warburg & Co’s Asset Management and Servicing business, and private equity fund administrator Ipes, will put Apex in the top five largest fund administrators globally.
Increasing pressure on operational and regulatory efficiency, and the need for technological innovation to meet investors’ service demands are driving consolidation.
The Bank of Canada, Toronto Stock Exchange operator TMX Group, and non-profit organization Payments Canada announced in May they have developed and tested an integrated securities and payment settlement platform using a distributed ledger. The tests found cash and assets can be tokenized, enabling automated and instantaneous securities settlements.
It follows news the Australian Securities Exchange plans to go live with a blockchain-based equity clearing and settlement system by the first quarter of 2021. Testing of the Digital Asset-designed system will begin in the second quarter of next year.
But while there is significant hype surrounding blockchain, a new Gartner survey found that inadequate technology, a skills shortage and lack of company interest mean there are few deployments to date.
Responsible investing continues to heat up, with 40% of respondents to a recent Alternative Investment Management Association and Cayman Alternative Investment Summit survey saying they already employ responsible investing principles.
It now accounts for over 10% of the assets managed by members of the survey universe. And the trend seems set to grow, with the survey revealing a 50% increase in demand for responsible investing from current or prospective investors.
But meeting the demand will require efficient data management and reporting. Hedge funds’ investment selections need to meet and continue to comply with the principles, while positions, performance and risks must be accurately tracked and reported.
Managers’ reputations will be on the line, so any errors could prove both costly in terms of finances and reputation.