European fund managers await hefty bill
09 October 2013 London
Image: Shutterstock
Regulatory change could cost European fund managers up to $500 million per annum, according to study by BNY Mellon and EY.
The European funds industry faces extra expenses totalling between $300 million and $500 million per annum over the next three years to address new regulatory requirements, according to the study.
This translates over the next three to five years into a ’conservative’ 3 percent-plus increase in cost/income ratios correlated to a 2 percent-plus uplift in total expense ratios (assuming profit pools remain at current levels).
The study, 'The Impending Profitability Challenge for European Fund Managers', highlights the increased pressures on firms as compliance costs rise and investors demand cheaper products.
These pressures may lead to increased consolidation of asset management firms and create significant barriers to entry, as small firms struggle to survive.
"Larger fund managers will benefit from offering multi-asset products, as well as their robust risk infrastructures," said BNY Mellon.
As the top 20 fund management houses gain market share there is a noticeable change in asset balance, with passive funds and ETFs growing at twice the rate of active funds, according to the study.
Daron Pearce, EMEA head of global financial institutions at BNY Mellon, said: “There are a multitude of initiatives that fund managers could consider in the face of falling profitability and rising costs/income ratios. These include reconsidering the opportunities of long term restructuring and building partnerships with third party providers for middle and front office functions. This is not just an issue for CIOs, but also something that needs to be focused on at the CEO level.”
The European funds industry faces extra expenses totalling between $300 million and $500 million per annum over the next three years to address new regulatory requirements, according to the study.
This translates over the next three to five years into a ’conservative’ 3 percent-plus increase in cost/income ratios correlated to a 2 percent-plus uplift in total expense ratios (assuming profit pools remain at current levels).
The study, 'The Impending Profitability Challenge for European Fund Managers', highlights the increased pressures on firms as compliance costs rise and investors demand cheaper products.
These pressures may lead to increased consolidation of asset management firms and create significant barriers to entry, as small firms struggle to survive.
"Larger fund managers will benefit from offering multi-asset products, as well as their robust risk infrastructures," said BNY Mellon.
As the top 20 fund management houses gain market share there is a noticeable change in asset balance, with passive funds and ETFs growing at twice the rate of active funds, according to the study.
Daron Pearce, EMEA head of global financial institutions at BNY Mellon, said: “There are a multitude of initiatives that fund managers could consider in the face of falling profitability and rising costs/income ratios. These include reconsidering the opportunities of long term restructuring and building partnerships with third party providers for middle and front office functions. This is not just an issue for CIOs, but also something that needs to be focused on at the CEO level.”
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