Characterised by election fever, 2010 will see changes to the flow of funds, an increase in the use of Ucits wrappers by hedge funds and an opportunity for growth with defined contribution pensions, according to Tom Brown, European head of investment management at KPMG.
Brown says there is a risk of some substantial falls in asset prices in some markets this year.
Since the trough of March 2009, there have been huge price rises, often 50 per cent or more. As the government takes its foot off the gas in terms of support, Brown says prices may take a tumble.
“These price changes will likely result in a changes to the flow of funds,” he says. “Investors may take back their cash; move it into cash deposit products, particularly as interest rates are predicted to rise; or perhaps into investment products with guarantees or downside protection. Managers need to be thinking now about how they might deal with these changing flows be it through launching new products, perhaps with guarantees, or new strategies like absolute return”
Brown believes 2010 will be a “wait and see” year for managers with regards to the Alternative Investment Fund Managers Directive. In the meantime, the looming threat of this legislation will continue to drive the creation of Ucits products by hedge fund managers. As the larger managers are seen to embrace the Ucits wrapper with good results, the momentum around creating and using these products will increase.
“In addition, managers will be keeping a close eye on the Retail Distribution Review, particularly as it seems regulators are starting to think about a more pan-European approach to commission-based sales,” says Brown. “As many managers rely heavily on the IFA channel for product distribution, RDR decisions will have a large impact on manager’s business models and perhaps we’ll see a push towards more direct-to-customer sales.”
As defined benefit pension schemes continue to close and employers embrace defined contribution plans, managers should be thinking about how to ensure they are one of the choices, especially those managers not already linked to an insurance company. Brown says there is a real opportunity for managers here as they are independent providers, often offer a wider range of products and can provide interesting and creative ideas.
Brown adds that maintaining momentum during the election is important.
“Over the last couple of years, the government and the treasury have really begun to recognise the importance of the investment management industry to the UK economy. I very much hope that the election doesn’t distract us from the momentum we have built behind keeping the UK a good place to do investment management business. There is a real opportunity for the UK to capitalise on the move by managers to bring their people and business onshore.”
