The Investor's Perspective James Suglia, KPMG LLP
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Transcript of The Investor's Perspective James Suglia, KPMG LLP
Renewing the Promise: Time to mend relationships in Investment ManagementSeptember, 2009
INVESTMENT MANAGEMENT
FINANCIAL SERVICES
2© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
About the research
survey respondents
in-depth interviews
countries around the world
SIZE AND REACH
288 22 29
RESPONDENTS BY TYPE
35% 25%17%11%10%
wealth managers
investment managers
pension funds
insurance companies
family offices
sovereign wealth funds02%
3© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Overview
In this research we uncovered gaps and contrasting views, guides for the industry in addressing key areas vital for recovery We focus on four topics:
corporate governance and risk management trust in intermediaries expected future regulation the strategic importance of differentiation
Critical steps towards recovery: large-scale change and in mending relationships through improving communication and transparency within the industry
4© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Corporate governance and risk management: changing and its obstacles
Why implement changes?
What is the major obstacle to change?
46% of Investors think that their trust will be restored in the short term if this happens
of Investment Managers globally selected ‘Lack of vision by top management’ as the main factor slowing progress
65%
5© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
How is the industryperforming
in these areas?
Performing very badly Performing very well
1.
2.
3.
4.
InvestorsInvestment Managers
Corporate governance and risk management: are we focusing on the right things?
What should investment Managers prioritise?
Investors’ wish list:
1. Visibility on reportsissued by regulators
2. Adherence to bestpractice codes of conduct
3. Obtain more independentassurance
4. Use of externalindependent directors
Source: Datamonitor
6© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
How can trustin them
be restored?
Lack of trust: What are the keys to re-open the door?Investors: Financial Intermediaries are less trustworthy than politicians
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%77%
25%
Investment ManagersInvestors
64%
72%
75%
55% 60% 65% 70% 75% 80%
Better training on investment managers products
Provide real evidence of better risk management practices implemented
More transparency: performance & fees
Investment Manager’s view Selected by
Institutional Investors
Retail Investors
Better training on products 58%
Disclosure of value-at-risk details 39%
Provide real evidence of better risk management practices that investment managers have implemented
36% 37%
More transparency with regard to performance and fees
33%
Supporting literature providing insight into how products fit overall investment strategies
33%
Face to face access to fund managers 30%
Source: Datamonitor
7© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Lack of trust: the transparency key
Transparency has become a major subject for restoring trust in the entire industry
Strongly agree Somewhat agree
0% 20% 40% 60% 80% 100%
Somewhat disagree Strongly disagree
…investment risk
…investment strategies
I/my clients would like more transparency from Investment Managers on…
Source: Datamonitor
8© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Regulatory reform: the difference between will and should
What will – according to different respondent groups:
Investment manager’s view
77% 76% 76% 76%
0%
20%
40%
60%
80%
100%
1 2 3 4
Institutional Investors’ view
4 5 3
53%48% 46%
0%
20%
40%
60%
80%
100%Retail Investors’ view
5 6 4
50%
38% 38%
0%
20%
40%
60%
80%
100%
1 Placing limitations on leverage2 Levels of disclosure to clients3 Engage in additional external assurance
4 Risk management and internal controls5 The shorting of shares6 Levels of regulatory reporting
Source: Datamonitor
9© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Regulatory reform: the difference between will and should
The use of derivatives
Level of disclosure to clients
Corporate governance and limits to product innovation
The shorting on shares
Risk management and internal controls
Placing limitations on leverage
12 3
12 3
What should:What will:
10© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Regulatory reform: the worries
of Respondents think more regulation will remove opportunities for innovation going forward
feel that a clamp down will seriously increase costs for investment managers
think investment managers will be unable to pass on these associated costs to their clients
81%
63%72%
11© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Regulatory reform: impact on traditional sector
Investment Managers:
regulation on levels of disclosure to clients is most likely to pass in the Traditional sector and is likely to have the highest impact on the industry’s profitability
Traditional investment funds
Like
ly im
pact
on
the
indu
stry
’s p
rofit
abili
ty
Likelihood of new regulations
Source: Datamonitor
Less likely
More likely
Less limiting
More limiting
12© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Regulatory reform: impact on alternatives sector
Investment Managers:
regulation on the extent of external assurance is most likely to pass in the Alternatives sector and is likely to have the highest impact on the industry’s profitability
Alternative investment funds
Like
ly im
pact
on
the
indu
stry
’s p
rofit
abili
ty
Less limiting
More limiting
Likelihood of new regulationsLess likely
More likely
13© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Differentiation: is it that hard?
of Respondents think that it has become more important for investment managers to differentiate themselves77%Investors top ideas for differentiation:
focusing on client communications
stakeholder relationship management
improved marketing and communication
12 3
14© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Differentiation: is it that hard?
What criteria will Investors use in choosing their investment manager in the next 12 months?
2. Financial stability of the provider
3. Investment performance
4. Low fees
5. Service quality
6. Personal relationships
1. Transparency on products
Universal modelstrength
Boutiquestrength
? ?
What does it all mean?
16© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Investor perspectives matter
Their perspectives differ Investors want:
more transparency and better communication
And they want that with: Investment Managers and
Financial Intermediaries
17© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Financial intermediaries need support
Financial Intermediaries are a vital piece in the value chain
They would benefit from better training and support on products from Investment Managers
The return of trust depends on the above
18© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Regulation is unavoidable
Further regulation is inevitable and necessary
But: it could increase costs and stifle
innovation
And: it could end up focusing in the
wrong areas
19© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.
Investment Managers back-to-basics
Client at the core: client relationship management clear communications quality service fund managers available to
clients
Build closer relationships with fewer Financial Intermediaries
Work collaboratively to restore investor trust
James SugliaGlobal Head of Investment Management Advisory
KPMG in the US+1 617 988 5607
www.kpmg.com
© 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind
KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.