The Investor's Perspective James Suglia, KPMG LLP


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The Investor's Perspective James Suglia, KPMG LLP

  1. 1. Renewing the Promise: Time to mend relationships in Investment Management September, 2009 INVESTMENT MANAGEMENT FINANCIAL SERVICES
  2. 2. About the research survey respondents in-depth interviews countries around the world SIZE AND REACH 288 22 29 RESPONDENTS BY TYPE 35 % 25 % 17 % 11 % 10 % wealth managers investment managers pension funds insurance companies family offices sovereign wealth funds 02 %
  3. 3. Overview <ul><li>In this research we uncovered gaps and contrasting views, guides for the industry in addressing key areas vital for recovery </li></ul><ul><ul><li>We focus on four topics: </li></ul></ul><ul><ul><ul><li>corporate governance and risk management </li></ul></ul></ul><ul><ul><ul><li>trust in intermediaries </li></ul></ul></ul><ul><ul><ul><li>expected future regulation </li></ul></ul></ul><ul><ul><ul><li>the strategic importance of differentiation </li></ul></ul></ul><ul><ul><li>Critical steps towards recovery: large-scale change and in mending relationships through improving communication and transparency within the industry </li></ul></ul>
  4. 4. Corporate governance and risk management: changing and its obstacles Why implement changes? What is the major obstacle to change? 46% of Investors think that their trust will be restored in the short term if this happens of Investment Managers globally selected ‘Lack of vision by top management’ as the main factor slowing progress 65%
  5. 5. Corporate governance and risk management: are we focusing on the right things? <ul><li>What should investment Managers prioritise? </li></ul>How is the industry performing in these areas? <ul><li>Investors’ wish list: </li></ul><ul><ul><li>Visibility on reports issued by regulators </li></ul></ul><ul><ul><li>Adherence to best practice codes of conduct </li></ul></ul><ul><ul><li>Obtain more independent assurance </li></ul></ul><ul><ul><li>Use of external independent directors </li></ul></ul>Source: Datamonitor Performing very badly Performing very well 1. 2. 3. 4. Investors Investment Managers
  6. 6. Lack of trust: What are the keys to re-open the door? <ul><li>Investors: Financial Intermediaries are less trustworthy than politicians </li></ul>How can trust in them be restored? 77% 25% Investment Managers Investors Source: Datamonitor 0 % 1 0 % 2 0 % 3 0 % 4 0 % 5 0 % 6 0 % 7 0 % 8 0 % 9 0 % 6 4 % 7 2 % 7 5 % 5 5 % 6 0 % 65 % 7 0 % 7 5 % 8 0 % Better training on investment managers products Provide real evidence of better risk management practices implemented More transparency: performance & fees Investment Manager’s view
  7. 7. Lack of trust: the transparency key <ul><li>Transparency has become a major subject for restoring trust in the entire industry </li></ul>Strongly agree Somewhat agree 0% 20% 40% 60% 80% 100% Somewhat disagree Strongly disagree … investment risk … investment strategies I/my clients would like more transparency from Investment Managers on… Source: Datamonitor
  8. 8. Regulatory reform: the difference between will and should <ul><li>What will – according to different respondent groups: </li></ul>Source: Datamonitor 1 Placing limitations on leverage 2 Levels of disclosure to clients 3 Engage in additional external assurance 4 Risk management and internal controls 5 The shorting of shares 6 Levels of regulatory reporting
  9. 9. Regulatory reform: the difference between will and should <ul><ul><li>The use of derivatives </li></ul></ul><ul><ul><li>Level of disclosure to clients </li></ul></ul><ul><ul><li>Corporate governance and limits to product innovation </li></ul></ul><ul><ul><ul><li>The shorting on shares </li></ul></ul></ul><ul><ul><ul><li>Risk management and internal controls </li></ul></ul></ul><ul><ul><ul><li>Placing limitations on leverage </li></ul></ul></ul>1 2 3 1 2 3 What should : What will :
  10. 10. Regulatory reform: the worries <ul><li>of Respondents think more regulation will remove opportunities for innovation going forward </li></ul><ul><li>feel that a clamp down will seriously increase costs for investment managers </li></ul><ul><li>think investment managers will be unable to pass on these associated costs to their clients </li></ul>81% 63% 72%
  11. 11. Regulatory reform: impact on traditional sector <ul><li>Investment Managers: </li></ul><ul><li>regulation on levels of disclosure to clients is most likely to pass in the Traditional sector and is likely to have the highest impact on the industry’s profitability </li></ul>Traditional investment funds Likely impact on the industry’s profitability Likelihood of new regulations Source: Datamonitor Less likely More likely Less limiting More limiting
  12. 12. Regulatory reform: impact on alternatives sector <ul><li>Investment Managers: </li></ul><ul><li>regulation on the extent of external assurance is most likely to pass in the Alternatives sector and is likely to have the highest impact on the industry’s profitability </li></ul>Alternative investment funds Likely impact on the industry’s profitability Less limiting More limiting Likelihood of new regulations Less likely More likely
  13. 13. Differentiation: is it that hard? <ul><li>of Respondents think that it has become more important for investment managers to differentiate themselves </li></ul>77% <ul><li>Investors top ideas for differentiation: </li></ul><ul><ul><ul><ul><li>focusing on client communications </li></ul></ul></ul></ul><ul><ul><ul><ul><li>stakeholder relationship management </li></ul></ul></ul></ul><ul><ul><ul><ul><li>improved marketing and communication </li></ul></ul></ul></ul>1 2 3
  14. 14. Differentiation: is it that hard? <ul><li>What criteria will Investors use in choosing their investment manager in the next 12 months? </li></ul>2. Financial stability of the provider 3. Investment performance 4. Low fees 5. Service quality 6. Personal relationships 1. Transparency on products Universal model strength Boutique strength ? ?
  15. 15. What does it all mean?
  16. 16. Investor perspectives matter <ul><li>Their perspectives differ </li></ul><ul><ul><li>Investors want: </li></ul></ul><ul><ul><ul><li>more transparency and better communication </li></ul></ul></ul><ul><ul><li>And they want that with: </li></ul></ul><ul><ul><ul><li>Investment Managers and Financial Intermediaries </li></ul></ul></ul>
  17. 17. Financial intermediaries need support <ul><ul><li>Financial Intermediaries are a vital piece in the value chain </li></ul></ul><ul><ul><li>They would benefit from better training and support on products from Investment Managers </li></ul></ul><ul><ul><li>The return of trust depends on the above </li></ul></ul>
  18. 18. Regulation is unavoidable <ul><li>Further regulation is inevitable and necessary </li></ul><ul><ul><li>But: </li></ul></ul><ul><ul><li>it could increase costs and stifle innovation </li></ul></ul><ul><ul><li>And: </li></ul></ul><ul><ul><li>it could end up focusing in the wrong areas </li></ul></ul>
  19. 19. Investment Managers back-to-basics <ul><li>Client at the core: </li></ul><ul><ul><li>client relationship management </li></ul></ul><ul><ul><li>clear communications </li></ul></ul><ul><ul><li>quality service </li></ul></ul><ul><ul><li>fund managers available to clients </li></ul></ul><ul><li>Build closer relationships with fewer Financial Intermediaries </li></ul><ul><li>Work collaboratively to restore investor trust </li></ul>
  20. 20. James Suglia Global Head of Investment Management Advisory KPMG in the US +1 617 988 5607 [email_address] © 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.