State Street survey: Asset managers fear technology-driven new entrants
04 July 2018 London
Image: Shutterstock
Technology-driven disruption is a major challenge for the financial industry, according to key findings of the State Street 2018 Fund Strategy Survey, where 88 percent of respondents voiced it as a concern.
The survey, carried out by State Street across April and May 2018, found more than half (57 percent) of asset managers fear technology-driven new entrants.
The global survey, which gathered 250 responses from 15 countries, explored the expected impact of regulatory and technology change on the distribution landscape and also delved in to how asset managers are approaching the selection of fund vehicles and domiciles, while also taking the outcome of Brexit in to consideration.
When discussing technology-driven disruption, State Street asked to what extent respondents agreed that the pace of industry disruption will increase, as new technology-driven challengers could threaten incumbents’ distribution models.
Some 33 percent said they somewhat agreed, while 24 percent said they strongly agreed. A further 31 percent said they were neutral to the statement, and 12 percent said they somewhat disagreed.
In terms of regulation and European competitiveness, 43 percent of respondents thought the second Markets in Financial Instruments Directive (MiFID II) would exacerbate distribution challenges to product distribution in Europe over the next five years.
Some 36 percent estimated Europe would decrease its dominance in cross-border distribution over the same period.
In terms or regulatory reporting challenges, 37 percent of respondents said trade and transaction reporting, such as the Markets in Financial Instruments Regulation and Securities Financing Transactions Regulation, would be the top regulatory challenges for their firms over the next five years.
A further 24 percent said governance and transparency would be a challenge, while 20 percent said tax and financial reporting would be a challenging task over the same period.
In response to Brexit, the survey found the majority of asset managers were reshaping their distribution strategy and expect to increase hiring in new locations over the next five years.
Some 54 percent said they were in the process of taking action in revising their distribution strategy, while 19 percent said they had already taken action.
In a separate poll, the survey asked if asset managers have, or are intending, to hire staff in a new location.
Some 54 percent said they expect to take action within five years, 21 percent said they were in the process of taking action, and 18 percent said they were taking no action in the next five years.
When asked about cross-border funds, nearly two-thirds (64 percent) of respondents said they had an increasing appetite for cross-border product launches over the next five years.
While 36 percent of respondents said it would increase their appetite slightly, some 35 percent said it was unlikely to change.
During the same timeframe, cross-border fund domiciles are also envisioned to experience accelerated growth, the survey found.
Just over two thirds (62 percent) of asset managers that responded to the survey plan to domicile their funds in Luxembourg, (a 16-percent rise from today), 55 percent in Ireland, (a 13-percent increase from today), and 25 percent in the Cayman Islands, (a six percent increase from today).
All three domiciles are among the top five most sought-after locations, with Ireland expected to overtake the US and the UK.
Liz Nolan, CEO of State Street’s Europe, the Middle East and Africa, said: “Asset managers are expanding geographically to bring new products to market and tap new growth opportunities.”
She added: “As cross-border strategies rapidly gain traction, asset managers will seek scale and efficiency in a cost-pressure environment by choosing domiciles where they can distribute across jurisdictions, structures and governance frameworks.”
David Suetens, head of State Street in Luxembourg, commented: “As cross-border products are increasingly seen as the optimal path for growth, asset managers are looking for domiciles with an established regulatory environment.”
He added: “Locations such as Luxembourg and Ireland that can meet regulatory obligations confidently and efficiently are seen as the natural choice by asset managers, allowing them to mitigate risk, achieve economies of scale and reach investors globally.”
Oxford Economics conducted the survey on behalf of State Street. The US, the UK and Europe were the main top distribution markets for study participants.
The survey, carried out by State Street across April and May 2018, found more than half (57 percent) of asset managers fear technology-driven new entrants.
The global survey, which gathered 250 responses from 15 countries, explored the expected impact of regulatory and technology change on the distribution landscape and also delved in to how asset managers are approaching the selection of fund vehicles and domiciles, while also taking the outcome of Brexit in to consideration.
When discussing technology-driven disruption, State Street asked to what extent respondents agreed that the pace of industry disruption will increase, as new technology-driven challengers could threaten incumbents’ distribution models.
Some 33 percent said they somewhat agreed, while 24 percent said they strongly agreed. A further 31 percent said they were neutral to the statement, and 12 percent said they somewhat disagreed.
In terms of regulation and European competitiveness, 43 percent of respondents thought the second Markets in Financial Instruments Directive (MiFID II) would exacerbate distribution challenges to product distribution in Europe over the next five years.
Some 36 percent estimated Europe would decrease its dominance in cross-border distribution over the same period.
In terms or regulatory reporting challenges, 37 percent of respondents said trade and transaction reporting, such as the Markets in Financial Instruments Regulation and Securities Financing Transactions Regulation, would be the top regulatory challenges for their firms over the next five years.
A further 24 percent said governance and transparency would be a challenge, while 20 percent said tax and financial reporting would be a challenging task over the same period.
In response to Brexit, the survey found the majority of asset managers were reshaping their distribution strategy and expect to increase hiring in new locations over the next five years.
Some 54 percent said they were in the process of taking action in revising their distribution strategy, while 19 percent said they had already taken action.
In a separate poll, the survey asked if asset managers have, or are intending, to hire staff in a new location.
Some 54 percent said they expect to take action within five years, 21 percent said they were in the process of taking action, and 18 percent said they were taking no action in the next five years.
When asked about cross-border funds, nearly two-thirds (64 percent) of respondents said they had an increasing appetite for cross-border product launches over the next five years.
While 36 percent of respondents said it would increase their appetite slightly, some 35 percent said it was unlikely to change.
During the same timeframe, cross-border fund domiciles are also envisioned to experience accelerated growth, the survey found.
Just over two thirds (62 percent) of asset managers that responded to the survey plan to domicile their funds in Luxembourg, (a 16-percent rise from today), 55 percent in Ireland, (a 13-percent increase from today), and 25 percent in the Cayman Islands, (a six percent increase from today).
All three domiciles are among the top five most sought-after locations, with Ireland expected to overtake the US and the UK.
Liz Nolan, CEO of State Street’s Europe, the Middle East and Africa, said: “Asset managers are expanding geographically to bring new products to market and tap new growth opportunities.”
She added: “As cross-border strategies rapidly gain traction, asset managers will seek scale and efficiency in a cost-pressure environment by choosing domiciles where they can distribute across jurisdictions, structures and governance frameworks.”
David Suetens, head of State Street in Luxembourg, commented: “As cross-border products are increasingly seen as the optimal path for growth, asset managers are looking for domiciles with an established regulatory environment.”
He added: “Locations such as Luxembourg and Ireland that can meet regulatory obligations confidently and efficiently are seen as the natural choice by asset managers, allowing them to mitigate risk, achieve economies of scale and reach investors globally.”
Oxford Economics conducted the survey on behalf of State Street. The US, the UK and Europe were the main top distribution markets for study participants.
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