Regulation is dampening product innovation: Cerulli
Regulatory changes are stifling product innovation within Europe’s asset management industry, according to a new report from Cerulli Associates.
More than 20% of the asset managers surveyed for Cerulli’s research into alternative products believe that regulation is holding back the development of new products, the Cerulli Edge – Europe Edition report highlights.
Cerulli’s analysis of the alternative products in which asset managers plan to increase their investment management capabilities over the next three years found that the vast majority (84.6%) are looking to beef-up their resources in absolute-return products.
Around one in three are planning to focus more on private debt, long/short risk premia, real estate debt, and infrastructure debt.
Angelos Gousios, director, European Retail Research, at Cerulli said: “The FCA, the UK’s financial regulator, has been at pains to suggest that some asset managers have taken short cuts on the product design process, eschewing client interests in favour of products that are easily managed. The retort from managers is that regulation is inhibiting innovation and could eventually lead to unduly restricted choice.”
“Managers want to innovate, but are constrained by regulation that does not encourage or reward risk-takers because of the understandable focus on protecting the investor,” added Gousios.
As per the report there is an increase in demand for customised products, with larger clients of asset managers asking for exclusive arrangements as well as tweaks to existing funds.
86% of the asset managers that responded to Cerulli’s survey expect a growth in the number of European distributors using subadvisors over the next two years.
The report also highlighted that MiFID II’s rules on cost disclosure, particularly around research, will put margins under additional pressure and make it difficult for smaller asset managers to remain competitive.
And in the Nordic region, a relaxation of the investment rules for Sweden’s buffer funds and a review of its premium pension system, along with the restructuring of the Norwegian Government Pension Fund Global’s benchmark will create various opportunities for external fund managers.