In a 2017 outlook published on December 22, EY outlined what it thinks will be the main challenges and opportunities for the investment sector. They include:
Gill Lofts, EY’s UK head of wealth and asset management, expects “an ever increasing focus from the [Financial Conduct Authority]” in 2017. Key pieces of legislation, including the Senior Managers Regime and the Competition Review, will be high on the agenda for fund managers. SMR will put greater emphasis on governance, risk management and individual liability, while the Competition Review will “further challenge operational efficiency and transparency, putting greater demands on asset managers’ data and reporting capabilities, and their bottom line”, said Lofts.
Planning for Brexit
EY expects firms to step up (or in some cases start) their Brexit programmes well ahead of Article 50 being triggered in March. It is not predicting a mass exodus of fund managers from London and expects the City to maintain its status as a global asset management hub. However, some are looking outside the capital. Lofts said: “Whilst some managers will be looking tactically to increase their presence in Dublin or Luxembourg, others are taking a longer term strategic view and looking at other viable EU jurisdictions. These alternatives may prove strategically more beneficial in the medium to longer term.”
The active vs passive debate rolls on
The FCA’s report on the asset management industry, published in November, brought the active versus passive debate into sharp focus, said Simon Turner, a partner in EY’s wealth and asset management practice, along with scrutiny of fee transparency and so-called “closet indexers”. While the money has favoured passive funds in 2016, Turner believes that could change next year if markets turn and stockpickers are able to outperform index-trackers: “To a degree, the level of support for a lower-fee environment may depend on macro-economic and market forces as much as industry and regulatory arguments.”
Increased use of technology
Robotics and big data will continue to be embraced by managers in 2017. Lofts says that 2016 saw increased focus on outsourcing and smart sourcing and how fund managers can apply robotics and data analytics, and “2017 should see new operating models start to emerge”.
EY expects hedge funds to use developments in technology to bring down costs and fees; use big data to improve front-office analytics; and invest in creating efficiencies in back and middle-office processes. Zeynep Meric-Smith, co-lead of UK hedge funds at EY, said: “Innovative developments in technology are lowering the barriers to entry for new launches and start-ups too, which in turn will increase the efficiencies in the market place for all investors and funds, regardless of size.”