5 Trends Shaping Today's Fund Industry

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Presentation by NICSA President, Theresa Hamacher, at the RR Donnelly user conference in Boston on May 22, 2012

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5 Trends Shaping Today's Fund Industry

  1. 1. 5 Trends Shaping Today’s Fund IndustryTheresa Hamacher, CFAPresidentNICSARR Donnelly FundSuite User ConferenceMay 22, 2012 1
  2. 2. Agenda Alternative investments Product regulation Distribution Emerging markets Social media 2
  3. 3. Trend #1The Great Convergence 3
  4. 4. The Wall Between Mutual Funds and HedgeFunds. . . 4
  5. 5. . . . Has Been Breached 5
  6. 6. Mutual Funds Look More Like Hedge Funds Janus Global Putnam Absolute DWS Alternative Market Neutral Return 100 Fund Asset Allocation Fund ProFunds UltraShort SPDR® Gold PowerShare DBEmerging Markets Shares Double Long ETN Index Fund 6
  7. 7. Alternative Funds are Growing. . . 7
  8. 8. . . . While Equity Funds Overall Are Struggling 8
  9. 9. Hedge Funds Will Look More Like MutualFunds. . . JOBS Act of 2012 Jumpstart our Business Startups Accept up to 2,000 Advertise to theinvestors (vs. 500 now) general public Still available only to “qualified purchasers” or “accredited investors” 9
  10. 10. . . . Including in Their Level of Regulation. . . Dodd- Hedge fund managers register as Frank investment advisers Adviser Subject to SEC rules on chief compliance officer, codes of ethics, registration record retention, advertising SEC to establish rules for verifying JOBS Act investor income, assets 10
  11. 11. . . . Which Changes Their Operating Model Over 70% of hedge funds now have at least 1 employee dedicated to compliance, according to the latest PwC survey 11
  12. 12. Trend #2 It’s a Complex /Non-Complex World 12
  13. 13. Regulators are Prepared for Simple orComplex. . . Mutual funds Hedge funds 13
  14. 14. . . . But Not for the In Between Mutual funds Hybrid Hedge funds 14
  15. 15. Reconsidering the Rules Here. . . SEC Concept release on mutual fund use of derivatives SEC Moratorium on new ETFs using derivatives and leverage CFTC Expanded commodity pool operator registration IRS Suspends private letter rulings on indirect commodity exposure FINRA Sanctions for improper leveraged and inverse ETF sales 15
  16. 16. . . . And in Europe UCITS NewCITS Non-complex? Complex? 16
  17. 17. Trend #3 You Say “Products,”And I Say “Solutions” 17
  18. 18. What Retirement Means to You and Me. . . 18
  19. 19. . . . And What It Means to the Financial Industry Mutual funds Life annuity SEP IRA 401(k) Roth 401(k) SIMPLE IRAFixed annuity 403(b) IRA Collective investment trust 457 Variable annuity Defined benefit plan 19
  20. 20. The Investment Industry Provides Products. . . Mutual Managed Investment Annuities funds accounts advisers ICI MMI IRI IAA Life insurance Hedge funds Collective trusts Coalition for ACLI MFA CTs 20
  21. 21. . . . While Financial Advisers Provide Solutions Funds Wrap account Brokerage account Unified management account 21
  22. 22. The Fund Industry Fights Back with TargetDates. . . High Yield TIPS Bonds International Emerging Small Cap Markets Target Large Cap Date Alternatives Fund 22
  23. 23. . . . But Only in Retirement Plans 81% of investors owning funds outside of a retirement plan at work use a financial adviser, according to the ICI 23
  24. 24. Rethinking the Role and Responsibilities ofBrokers SEC Considering a fiduciary standard for brokers Revising fiduciary rule applying to DOL retirement plans Considering negotiated commissions for SEC funds as part of review of Rule 12b-1 Recommends that SEC review financial GAO planner titles and designations 24
  25. 25. Europe Grapples with Similar Issues RDR MiFID II PRIPS Markets in Packaged Retail Retail Distribution Financial Review Investment Instruments Products Directives UK EU EU Entirely fee-based Ban on compensation; Establish uniform “inducements” for minimum rules for all independent qualifications for products advisers advisers 25
  26. 26. Trend #4It’s Not All About China 26
  27. 27. If Every Person in China Bought Just One. . . 27
  28. 28. Percentage Growth is Stronger Elsewhere. . . Two years ended 2010. Source: Investment Company Institute 28
  29. 29. . . . Off a Larger Base Two years ended 2010. Source: Investment Company Institute 29
  30. 30. Blame it on Rio Brevan Howard to open Brazil office September 21, 2010PIMCO to Open Brazil OfficeApril 18, 2012 The Principal Bets on Brazil with Acquisition March 6, 2012Credit Suisse seeks full control of Brazil unitAugust 24, 2011 Fidelity appoints head for Brazil “. . . first employee in Brazil” June 21, 2011Why Brazil May Be U.S. Managers’ Best Bet for Asset GrowthOctober 27, 2012 30
  31. 31. Trend #5What’s in a Like? 31
  32. 32. Social Media in the Fund Industry 6 in 10 1 in 5 1 in 3 8 in 10 3 in 20 32
  33. 33. What’s in a Like? Possible prohibited testimonial, per the SEC Office of Compliance Inspections and Examinations An adoption, implying endorsement FINRA or approval Commonwealth of Need to be disclaimed Massachusetts 33
  34. 34. Executives are Wary of Social Media Gartner reports that 50% of large organizations blocked access to social media in the workplace in 2010. 34
  35. 35. . . . But Social Media is Essential to ManyEmployees 11% of workers spend 30% or more of their work day on social networking activities, according to the 2012 National Business Ethics Survey 35
  36. 36. Summary The great convergence It’s a complex / non-complex world You say “products,” and I say “solutions” It’s not all about China What’s in a Like? 36
  37. 37. Keep Up on the Trends Through NICSA news.nicsa.org @NICSAPres NICSA LinkedIn group Facebook: NICSAOnline nicsa.org/knowledge 37

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