Asset management industry in south africa,law of success review,the power of now chapter 6 - How to DIY

However, opinions are divided about the nature and magnitude of any associated risks from less leveraged, “plain-vanilla” investment products such as mutual funds and exchange-traded funds.
The empirical analysis finds evidence for many of these risk-creating mechanisms, although their importance varies across asset markets. The chapter does not aim to provide a final verdict on the overall systemic importance of the potential risks or to answer the question of whether some asset management companies should be designated as systemically important.
Oversight of the industry should be strengthened, with better microprudential supervision of risks and through the adoption of a macroprudential orientation. In recent years, credit intermediation has been shifting from the banking to the non-bank sector, including the asset management industry.1 Tighter regulations on banks, rising compliance costs, and continued bank balance sheet deleveraging following the global financial crisis have contributed to this shift. Accounting and finance powerhouse PwC believes the asset management industry has a rosy future.
PwC predicts that much of the growth in the global asset management industry over the next few years will come from South America, Asia, Africa, Middle East (SAAAME). Another significant driver of growth in global AuM is the continued growth of employer defined contribution schemes, often driven by government-incentivized or mandated transitions to individual retirement plans.
The PwC report also highlights that it is likely that foundations and endowments of all sizes will also continue to expand AuM as the baby boomer generation bequeaths more and more of their wealth. Five of the UK’s largest asset managers have reportedly joined forces to see if blockchain technology can reduce trading costs. The main companies involved have a combined total of more than ?1 trillion under management.
Joining the multinational giant are Aberdeen Asset Management and Columbia Threadneedle Investments, who manage ?290.5 billion (~US$428b) and ?320 billion (~US$461b) respectively. While these numbers seem almost incomprehensibly large, a report by the Boston Consulting Group (BCG) shows that global total for Assets Under Management (AUM) reached US$74 trillion in 2014, which is almost the same as global GDP of US$77.8 trillion, according to the World Bank.
These multi billion dollar management companies can also provide higher liquidity to their clients, even when they are investing in illiquid securities.
This project is the first time fund managers have come together to explore the use of blockchain technology, and while they play a key role in capital market infrastructures, they are among the last of the financial giants to enter the blockchain race. The US investment banking giant, JPMorgan Chase, partnered with Blythe Masters' Digital Asset Holdings recently. Over in Japan, a leading provider of consulting services and system solutions, Nomura Research Institute (NRI), is collaborating with SBI Sumishin Net Bank Ltd. Tackling the technology from a different angle, Bank of America has reportedly drafted 20 blockchain-related patents.
The French multinational insurance firm, AXA, recently outlined potential applications for the technology.
Both Euroclear and its US counterpart, the Depository Trust & Clearing Corporation (DTCC), recently released reports urging the industry to start using blockchain technology to improve capital market infrastructure. An working paper from management consulting firm, McKinsey, on Corporate & Investment Banking, explained the benefits of using blockchains in capital markets, including eliminating a number of middle and back office processes. It may take some time for asset managers to develop solutions based on blockchain technology. The landscape has changed for the asset management industry in the wake of the global financial crisis. The result has been dwindling returns on investment and an increased spotlight on the performance of asset managers. Research has shown that many asset managers fail to deliver "alpha"—that is, to beat their benchmarks after deducting fees, says Sean Davis, professor of finance at the University of North Florida in Jacksonville. As investors start to question fees, they are pushing the asset management industry toward a different cost structure. As a result, "we can anticipate significant downsizing in the asset management industry as the value benefit of asset managers has been put to the test," says Janet De Silva, dean of Ivey Asia, the Hong Kong campus of the Richard Ivey School of Business of the University of Western Ontario. Indeed, large institutional investors are increasingly bringing asset allocation and asset management in-house, she says.


A report for the CFA Institute, a global organization of chartered financial analysts, titled "Investment Management after the Global Financial Crisis," says that pension funds, for example, are struggling with their requirements to pay out pension benefits despite low interest rates and low returns. At the retail level, investors' aversion to fees means they are seeking simpler, more transparent products such as exchange-traded funds (ETFs) and index funds, Ms.
The future for asset managers depends on being able to provide and distinguish the added value they bring to their clients' portfolios, while forging better bonds with clients to repair trust. One way will be to more actively model risk in portfolios, including how asset classes correlate differently in normal markets or crisis markets, he says.
By being more upfront with clients about the risk in their portfolios, such as the probability of a shortfall in a down market, asset managers can rebuild trust.
Transparency is a favorite theme in asset selection, as well, giving a boost to simple products such as ETFs and index funds. The industry is moving toward greater diversification in asset classes, including real estate, commodities and natural resources such as forests and agriculture, she adds. One area of investment that is likely to benefit, and as a consequence the asset managers engaged with it, is that of emerging markets, and the Gulf in particular.
The Wall Street Journal news department was not involved in the creation of this advertisement. It helps investors diversify their assets more easily and can provide financing to the real economy as a “spare tire” even when banks are distressed. This chapter examines systemic risks related to these products conceptually and empirically. The delegation of day-to-day portfolio management introduces incentive problems between end investors and portfolio managers, which can encourage destabilizing behavior and amplify shocks. Mutual fund investments appear to affect asset price dynamics, at least in less liquid markets. However, the analysis shows that larger funds and funds managed by larger asset management companies do not necessarily contribute more to systemic risk: the investment focus appears to be relatively more important for their contribution to systemic risk.
Securities regulators should shift to a more hands-on supervisory model, supported by global standards on supervision and better data and risk indicators. They project a compound annual growth rate of 6% for the sector over the next five years, with global investable assets for the asset management industry soaring to over $100 trillion by 2020. Based on a detailed analysis of historical data, PwC anticipates this will rise to $101.7 trillion by 2020, which represents a compound growth rate of just under 6%.
The report notes that AuM in the SAAAME economies is expected to grow more rapidly than in the developed world between now and 2020. The large majority of these foundations and endowments will, of course, work with global asset managers to earn the highest possible return on their capital.
The Financial Times claims that the “secret project” is in its early stages, but already involves fintech companies, start-up technology businesses, and one of the big four audit firms, KPMG. The largest participant is Schroders, with 37 offices in 27 different countries across Europe, the Americas, Asia and the Middle East. Aviva Investors and Henderson Global Investors have also been in discussions, reports the FT. This new group of managers will explore several blockchain applications to speed up the transfer of illiquid securities directly between funds, which can currently take several days. 42 banks joined the R3 CEV consortium last year, in an effort to design and develop commercial products and financial-grade blockchain solutions. The team hopes to launch a trial project using blockchain technology to address liquidity mismatches in some of JPMorgan's loan funds. The aim is to develop a proof of concept for applying blockchain technology to banking infrastructure.
According to the US Patents and Trademark Office, the bank has already filed 11 various cryptocurrency applications. Smart contracts, micro transactions, and settlements were all mentioned in a company announcement.


While the Nasdaq group is already using the blockchain to issue securities for their private market, the London Stock Exchange is participating in the “Post Trade Distributed Ledger Working Group.” The collaborative effort include the large clearing house Euroclear. Alpha is value the asset manager adds—portfolio management, knowledge, expertise and, presumably, superior returns.
Asset management is easily scalable—a manager can handle $1 billion or $10 billion with about the same effort, says Noel Amenc, professor of finance at the EDHEC Business School's London campus and director of the EDHEC Rick Institute.
IT infrastructure costs, compliance and front- and back-office staff don't decrease in line with a decrease in assets under management. In addition, investors shifted from high-risk, high-margin assets toward low-risk, low-margin investments, such as high-grade bonds or cash market instruments.
They are trying to decrease costs, move assets to in-house management and boost returns through diversification and active asset allocation.
Opportunities lie not in complex instruments whose true value or risk may be nearly impossible to discern, but in recognizing long-term trends, such as rising food demand in China, Ms.
Already, by 2008, alternative investments made up 16% of pension fund assets in the seven largest pension markets, according to the CFA Institute report. Mansour also sees good prospects for investors in the Middle East and North African countries beyond the oil-rich Gulf, the predominantly Arab Spring countries. The industry also has various advantages over banks from a financial stability point of view.
Easy redemption options and the presence of a “first-mover” advantage can create risks of a run, and the resulting price dynamics can spread to other parts of the financial system through funding markets and balance sheet and collateral channels.
Various factors, such as certain fund share pricing rules, create a first-mover advantage, particularly for funds with high liquidity mismatches.
The roles and adequacy of existing risk management tools, including liquidity requirements, fees, and fund share pricing rules, should be reexamined, taking into account the industry’s role in systemic risk and the diversity of its products. Several banks are also working on their own blockchain initiatives, including Barclays, UBS, and Deutsche Bank.
This announcement came after NRI had already begun studying the use of blockchain technology in the securities industry. Failure to deliver alpha means investors would have been better off with a low-cost, passively managed fund. Nonetheless, concerns about potential financial stability risks posed by the asset management industry have increased recently as a result of that sector’s growth and of structural changes in financial systems. Furthermore, incentive problems matter: herding among portfolio managers is prevalent and increasing.
Banks are predominantly financed with short-term debt, exposing them to both solvency and liquidity risks.
Bond funds have grown significantly, funds have been investing in less liquid assets, and the volume of investment products offered to the general public in advanced economies has expanded substantially.
Of note, Asia ex-Japan’s AuM representation in the MSCI World Index was only 9% as of 2010, although its total contribution to GDP was close to 18% at the time. Risks from some segments of the industry—leveraged hedge funds and money market funds—are already widely recognized. High leverage is mostly limited to hedge funds and private equity funds, which represent a small share of the industry.3 Therefore, solvency risk is low in most cases (see October 2014 Global Financial Stability Report).
Intermediation through funds also brings funding cost benefits and fewer restrictions for firms compared with bank financing—it does, however, also expose firms to more volatile funding conditions, so the advantages have to be weighed against the risks.



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