The global investment industry is in the midst of structural reorientation. Mergers, acquisitions, in...
A recent annual investment management survey by consultants, PriceWaterhouse-Coopers sheds some light on the impact of recent restructuring. While the survey focuses on UK and Irish-based fund management groups, Graham Wright, partner at PriceWaterhouseCoopers believes the results of the survey are particularly pertinent to the offshore investment industry.
Wright said integration has consolidated the industry. In what he terms 'horizontal integration', mergers and acquisitions has resulted in a reduction of the number of investment groups distributing funds and products in the market.
Basically, there are fewer companies to build up relationships with, provide links ups with and to offer clients products.
Fund managers are under no illusion of the impact this will have on their business. Richard Thompson, head of offshore sales and marketing at Invesco said: "this trend is set to continue and expects there will be an increase in consolidations with banks and investment companies for the future."
He added it is important to build up the right type of relationships with companies to be able to offer your clients good service and the best type of products. Consolidation has left investment companies with little choice as to who they want to do business with.
While there are fewer companies to do business with, technology is changing the way these groups communicate their products to their clients.
Richard Newell from offshore fund management consultants and fund of funds managers, Forsyth Partners, said the means of distribution and communication is changing in the offshore industry.
"The internet allows groups to communicate with advisers much more efficiently - pricing, investment strategy and reports can be sent directly to professional advisers," said Newell.
Newell added: "We do a lot of business in the Middle East, Africa and Asia and the internet makes it a lot easier to communicate to our professional advisers at any time."
Rothschild Asset Management is also using new technologies as a distribution means for clients. They are creating an electronic distribution portal to establish a client database.
The survey also pointed out the impact of what it calls 'vertical disintegration' which is the polarisation between 'manufacturers' of investment products and 'asset gatherers' who distribute the products to the market. The impact now means investment products have become largely unbundled.
This unbundling of investment products in the industry has made more types of funds available to the private investor. The main evidence of unbundling of products is the emergence of fund supermarkets. Fund supermarkets offer clients a range of products from multiple suppliers. Investors can pick and choose which funds they would like to buy from the supermarket.
Fund supermarkets have been most popular amongst the private investors. They can buy the funds directly at discounted prices and do not have to go through an intermediary.
Thompson said: "There is an increase in direct sales, fund supermarkets are offering investors discount prices and investors are turning away from the intermediaries and buying directly from these fund supermarkets."
Wright believes this trend is set to continue as the market becomes more dominated by the private investor: "People are living longer and are less able to rely on pensions and are looking for the best investment products to plan for their future."
The flipside of this is that financial institutions now have a lot of smaller accounts and fewer larger clients. As a result, administration costs are growing for these companies as the volume of paperwork that has been generated by the rise in smaller clients increases.
Other concerns focus on the impact fund supermarkets will have on the intermediary element of the investment process. Products like fund supermarkets have emerged which are suited to the private investor and they do not need to buy them via a professional adviser.
There will be three basic fund supermarket models in Europe. The first is the direct-to-retail model, such as Egg or Fidelity's FundsNetwork. In the case of Egg, US fund managers such as Janus are using this platform to gain recognition in the UK using good performance as a leverage into a highly competitive market. Janus recently launched a sterling version of its Dublin-based Janus Twenty Fund through the Egg online investment supermarket. (See article on page 36)
The industry still believes that intermediaries will be an important constituent of the investment process; the IFA supermarket platform proposal from Gartmore, Jupiter and Scudder called CoFunds is an example of this. Ivo Forde marketing director of Sarasin Investment Management believes individual investors will still need to obtain advice from IFAs on financial matters.
In addition, it is likely that fund management groups will assess more carefully their supermarket platform as groups such as FundsHub, Europe's first outsourced fund supermarket, offer cost effective ways to exploit the rapidly growing online investment market. FundsHub is a joint venture owned by Chase Manhattan Bank and Investia, the e-commerce technology company formed by former senior executives at Charles Schwab Europe.
Looking at the industry as a whole the market will be effected by four factors - retail orientation, openness and transparency, common standards and cost advantage.
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