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Fund rationalisation: A conundrum

, Ryan Tully

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Fund rationalisation: A conundrum

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One of the most significant fund industry changes in the past few years has been fund rationalisation. Ryan Tully discusses this challenge and the options for business leaders who are looking for greater efficiency to underpin their rationalisation programmes.

 

Business guru and former CEO of the General Electric Company, Jack Welsh, is said to have coined the phrase ‘change before you have to’. The fund industry needs to be more like Jack; change is afoot for sure.

 

One of the most significant changes in the past few years has been fund rationalisation: where asset managers and insurance platforms are refocusing their product offerings and closing down non-competitive strategies that have marginal assets and high costs. Driving this change is the burden of increasing regulatory and reporting demands and the downward pressure on fees. This is forcing investment management firms to eliminate resources in areas of underperformance, or outside their core value proposition, in order to become more profitable and resilient in the long term.

 

The implications of regulation

 

Industry-wide regulatory change is pushing for greater transparency, better reporting and proof of ‘added value’ to consumers for each fund offered. This is both costly and time consuming for managers as they must commit valuable resources to change their operating models. This is particularly true in Sweden where there are ongoing reforms to the national platform and where funds have been culled from over 800 to 500, with an expected imminent decrease to 200 or fewer. The idea is to simplify the platform and offer high quality products that perform well and align themselves with investor interests.

 

The decision to rationalise and make change is not simple, but the industry has no choice but to respond. However, maintaining a fund platform, whilst adopting a disciplined approach to rationalisation takes away from the core competences of investment firms. So, what are the options for business leaders who are looking to run operations more efficiently?

 

The value of a robust infrastructure solution

 

Consider working with an institutional-grade platform that takes care of the operational and legal complexities so that investors and managers can focus on what really matters: generating returns. In today’s increasingly regulated environment, ensuring you have robust infrastructure in place to provide the oversight and governance of funds on a platform is imperative. Additionally, a platform such as AMX can help managers pass cost reductions onto their investors and distribute into new jurisdictions without incurring the financial and regulatory challenges of doing so.

 

Being ahead of the curve will allow your end-investors and managers to function efficiently. Outsourcing the operational parts of the business not only saves money but also gives insurers, for instance, the time to focus on growing their core business. A consolidated solution is the way forward rather than a fragmented quick fix. It’s worth giving serious consideration to Jack’s advice; ‘change before you have to’.

 

Photo credit: Orla Kelly


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