New Product Convergence
| Date: | December 2009 |
| Author: | Richard Phillipson |
Investit Intelligence was asked to research new product development within the context of ‘convergence’. The primary aim of the report is to inform the readers about developments in the market and give them sufficient information to make decisions within the context of their own firm.
There are a number of aspects of the investment management industry that are experiencing convergence as, faced with changing circumstances, firms are looking at ways to adapt to the market. The aspects of the industry that we see converging are:
- Funds (particularly those that will occur under UCITS IV regulation).
- Strategies, such as hedge funds and conventional funds.
- Clients - eg retail clients and institutions.
- Firms.
In this report we identify a number of themes including:
- What clients want.
- Enablers; how investment managers are aiming to meet these needs while also achieving a profit.
- Investment manager skill
- UCITS III and IV
- Liability Driven Investment (LDI) planning and risk mitigation
- Exchange Traded Funds (ETFs)
- Challenges of this converging industry:
- Commoditisation; a route where few can succeed and innovation only gives a temporary monopoly on pricing power.
- Firms also need to take a view on in-house diversification; there are equity-based firms now looking around the market for fixed income teams; firms further along this road have been building up their asset allocation capability.
Finally, this report examines the decisions that firms need to make in order to be prepared for the converged world.
Table of contents
| Management Summary | 1 |
|
| 1 | Introduction | 3 |
| 1.1 | Context and Goal | 4 |
| 1.2 | Methodology | 6 |
| 1.3 | Background to the products | 7 |
| 1.4 | Background to the markets | 9 |
| 1.5 | Background to the clients | 11 |
| 2 | What People Want – Contrasting Goals | 13 |
| 2.1 | What do clients want? | 14 |
| 2.2 | What investment management firms want | 19 |
| 2.3 | What distributors sell | 22 |
| 3 | Enablers of Convergence | 23 |
| 3.1 | UCITS III | 24 |
| 3.2 | UCITS IV | 26 |
| 3.3 | Exchange Traded Funds (ETFs) | 28 |
| 3.4 | Alternative Investment Fund Managers (AIFM) Directive | 30 |
| 3.5 | The collapse of the single prime broker model | 32 |
| 4 | Inspiration – The Converging Solutions | 33 |
| 4.1 | The safety solutions | 34 |
| 4.2 | Solutions - New Balanced | 36 |
| 4.3 | Solutions for decumulation stages | 39 |
| 4.4 | New balanced – components | 40 |
| 4.5 | New, new balanced | 44 |
| 5 | Perspiration – The Development Challenge | 45 |
| 5.1 | The marketing decision | 46 |
| 5.2 | Company models | 48 |
| 5.3 | Fund mergers and pooling | 54 |
| 5.4 | Opportunities for outsourcers | 57 |
| 5.5 | Future risks | 58 |
| 6 | Appendices and Index | 59 |
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