The Economics of Fund Management

Ed Moisson

Description

Although the asset management industry has come under increasing scrutiny since the financial crisis it still remains poorly understood and investment scandals continue to headline in the financial press. Whereas most literature on the industry focuses on the technical end – how managers invest and what tips others can glean – this book explores the way these businesses operate as businesses and how they make their money.



The book explains how the industry is organized, how firms generate revenues through various types of fund, fees and charges and what cost pressures they face. It investigates the nature of their client relationships, the role played by star investors and the requirement for firms to integrate non-financial considerations into their investment process. The inherent tensions and potential conflicts of interest within asset managers that seek to keep both clients and shareholders happy is also examined. The book concludes by considering how the industry is evolving, the role of regulation and where it is struggling to change.



Suitable for students of business and finance, those working in allied areas of the finance sector, and for anyone with a general interest in how financial institutions and markets operate, the book offers readers a balanced and incisive guide to the economics of an industry that globally controls more than $100 trillion of financial assets and a critical appraisal of the sector’s future.

1. Introduction

2. Organization

3. Business model

4. Managing money

5. Stars and scandals

6. Purpose and sustainability

7. Regulations and responsibilities

8. Sales and products

9. Fees and charging

10. Conclusions and the future

Sujets

• Financial Services
• Industries
• Banking
• Economie gestion
• risk management
• Bank
• Neil Woodford
• General officer
• Tertiary sector of the economy
• Economics
• Business
• General
• Finance
• Service
• Industrie

Informations

• Publié par: Agenda Publishing
• Date de parution: 13 octobre 2022
• Nombre de lectures: 0
• EAN13: 9781788215350
• Langue: English
• Poids de l'ouvrage: 2 Mo

Extrait

he Economîcs o Bîg Busîness

hîs serîes o books provîdes sort, accessîbe întroductîons to te econom- îcs o major busîness sectors. Eac book ocuses on one partîcuar goba îndustry and examînes îts busîness mode, economîc strategy, te determî- nants o proItabîîty as we as te unîque îssues acîng îts economîc uture. More genera cross-sector caenges, wîc may be etîca, tecnoogîca, or envîronmenta, as we as wîder questîons raîsed by te concentratîon o economîc power, are aso expored. he serîes ofers rîgorous presentatîons o te undamenta economîcs underpînnîng key busîness sectors suîtabe or course use and a proessîona readersîp.

Pubished

he Economîcs o Aîrlînes, Second Edîtîon Voodymyr Bîotkac

he Economîcs o Arms Keît Hartey

he Economîcs o Constructîon Stepen Gruneberg and Nobe Francîs

he Economîcs o Fîsîng Rögnvadur Hannesson

he Economîcs o Fund Management Ed Moîsson

he Economîcs o Musîc, Second Edîtîon Peter Tscmuck

he Economîcs o Oîl and Gas Xîaoyî Mu

T H E E C O N O M I C S O F F U N D M A N A G E M E N T

E D M O I S S O N

© Ed Moîsson 2022

hîs book îs în copyrîgt under te Berne Conventîon. No reproductîon wîtout permîssîon. A rîgts reserved.

Fîrst pubîsed în 2022 by Agenda Pubîsîng

Agenda Pubîsîng îmîted heCore Bat ane Newcaste Heîx Newcaste upon Tyne NE4 5TF www.agendapub.com

ïSBN 978-1-78821-533-6 (ardcover) ïSBN 978-1-78821-534-3 (paperback)

British Library Cataoguing-in-Pubication Data A cataogue record or tîs book îs avaîabe rom te Brîtîs îbrary

Typeset by JS Typesettîng td, Portcaw, Mîd Gamorgan Prînted and bound în te UK by CPï Group (UK) td, Croydon, CR0 4YY

C O N T E N T S

 1.

Preace and acknowedgements Acronyms and abbrevîatîons

ïntroductîon

 2. Organîzatîon

 3. Busîness mode

 4. Managîng money

 5. Stars and scandas

 6. Purpose and sustaînabîîty

 7. Reguatîons and responsîbîîtîes

 8. Saes and products

 9. Fees and cargîng

10. Concusîons and te uture: ave we reaced peak mutua und?

Glossary Reerences Lîst o tables and igures Index

vîî xîîî

1

15

39

67

97

123

141

163

187

219

229 241 249 251

v

P R E FA C E A N D A C K N O W L E D G E M E N T S

My îdeas or tîs book ad been mîîng around or severa years, but tere îs notîng îke avîng surgery durîng a pandemîc to ocus your mînd. ï was ortunate tat Steven Gerrard at Agenda read te resutîng outîne and sug- gested tat ît coud orm te basîs or an addîtîon to Agenda’s serîes on te Economîcs o Bîg Busîness – sort, accessîbe întroductîons to te econom- îcs o major busîness sectors. ï cannot tank îm enoug or gîvîng me te cance to take tîs on. ï am not an economîst, so readers certaîny do not need to be to gaîn an understandîng o ow te und management îndustry unctîons and operates. he vast majorîty o îterature reatîng to asset man- agers concerns ow tey învest, so tere seems ampe room to expore te array o oter unctîons as we. here îs even more room to expore asset management în Europe and te UK wen so many books are ocused on te Unîted States, eîter întentîonay or as a resut o ît beîng te word’s argest market or mutua unds. Wrîtîng tîs book as prompted me to reLect on wat as canged, and wat asn’t, over te years sînce ï entered te asset management îndustry în te ate 1990s. hîs as made te process o wrîtîng partîcuary enjoyabe as tîme or reLectîon o tîs kînd îs ess easy wen wrîtîng about wat îs new în te îndustry day-to-day as a journaîst. Unusuay, my earîest experîence în asset management was anaysîng unds’ carges, wîc peraps expaîns wy ï ave ound tîs part o te îndustry (ow ît makes money) just as înter- estîng as îts învestment roe (ow ît makes money or cîents). ï ave been ortunate tat over te întervenîng years ï ave been învoved în researcîng and wrîtîng about unds’ perormance, Lows, reguatîons, dîstrîbutîon, as we

vii

THE ECONOMICS OF FUND MANAGEMENT

as te împact o tecnoogy and te deveopment o new products on und busînesses. Workîng varîousy at a researc Irm, însîde an asset manager and as a jour- naîst as gîven me te cance to ear dîverse perspectîves on te îndustry, bot rom coeagues and rom tose at oter Irms across Europe, as we as în te Unîted States and Asîa. hîs as been made more înterestîng, and some- tîmes more îvey, by oten tryîng to expore îssues tat asset managers tend to preer to be et unexpored. hîs book must tereore partîay reLect tose myrîad vîews, atoug ît aso reLects my înterpretatîon o events and actîons and so responsîbîîty or te vîews expressed în tîs book rests wît me aone. ï ope to ave conveyed înormatîon and însîgts on a o te most reevant îssues, atoug te book’s wîde scope înevîtaby means some areas are not tacked în dept. However, ï tînk te book serves îts maîn purpose, and soud be more accessîbe, as a resut. he aîm îs aso to ofer enoug ood or tougt to make ît o înterest to tose aready workîng în asset management, and potentîay tose wît a more genera înterest în better understandîng an îndustry tat as a growîng înLuence în te wîder economy. My experîences over te past 20 years or so ave et me wît te astîng împressîon tat tere îs îtte room or se-doubt wen workîng în asset man- agement – certaîny te wînd o se-conIdence Is te saîs o te îndustry’s successu executîves. ït îs not reay an îndustry or tose tat ack tîs con- Idence, et aone one or întroverts. But as a journaîst ï Ind myse reguary questîonîng my own vîews and înterpretatîons even as ï pose questîons to tose workîng în and around te busîness o und management. Over te years, earîng recyced tougts beîng regurgîtated as toug proound wîs- dom îs beîng împarted as sometîmes et me ongîng or more orîgîna or contrarîan opînîons. hîs seems surprîsîng în an îndustry tat prîdes îtse on beîng a “peope busîness”, were a range o dîferent peope wît dîferent vîews woud seem to be a prerequîsîte. hîs sîtuatîon party reLects asset man- agers’ strugges to be more dîverse, as we as îkey reLectîng tat ît îs not ony a competîtîve îndustry, but aso one were Irms (partîcuary tose operatîng în mutîpe markets) are sîmutaneousy cautîous about beîng seen to be too dîferent rom te norm est tey make any cîents nervous. Beîng a sae paîr o ands wen managîng cîents’ money ceary as îts merîts. But ookîng at te way Irms advertîse temseves or posîtîon teîr brands sows te resut: most asset managers sîmpy expaîn wat te îndustry does (î.e. învestîng)

viii

PREFACE AND ACKNOWLEDGEMENTS

rater tan sowîng ow teîr partîcuar busîness îs dîferent rom oters. ï tînk tîs îs party because wîe every Irm can agree ît îs strîvîng to deîver good Inancîa returns or cîents, dîstînguîsîng a und management com- pany rom îts peers în any oter way presents a tensîon between te înterests o învestors în unds and te învestors în te und management busîness. hîs îs te înerent tensîon, and potentîa conLîct o înterest, tat asset managers must grappe wît, but wîc tey preer to downpay: îger ees or te busîness mean ower returns or cîents, a oter tîngs beîng equa. he recurrîng and îgy resîîent revenue stream tat a und management busîness provîdes îs one o te maîn reasons wy te îndustry as moved rom a backwater în European Inancîa servîces to a prîzed possessîon over te past 40 years (abeît ebbîng and Lowîng în te întervenîng years). hîs was sown în te speed wît wîc te European unds îndustry recovered rom an înîtîa oss o amost €1.3 trîîon în assets în Marc 2020 trîggered by te Covîd-19 pandemîc, as cîents wîtdrew rom unds and stock markets e. But rater tan suferîng a onger-term ît to revenues, asset eves ad recovered by August o te same year. Asset managers în te UK and Europe ave not aways been în tîs posîtîon. he modern UK und management îndustry argu- aby entered te maînstream în te ate 1980s, boosted by te demand rom retaî învestors on te back o tax-încentîvîzed Persona Equîty Pans (PEPs) întroduced în te government’s 1986 Budget, wîc ad te aîm o expandîng îndîvîdua sare ownersîp. ïn tîme PEPs were repaced by ïndîvîdua Savîngs Accounts (ïSAs), but te îdea was te same. he power o star und managers (încudîng Morgan Grene’s Peter Young, dîscussed în tîs book) to attract tese UK cîents reay came to te ore în te 1990s and tey ave been a key eement o te îndustry ever sînce (wîc îsn’t to say tere weren’t good und managers beore tîs perîod, but tey worked în an ungamorous busîness, not eped by ong memorîes o te caos caused by Bernîe Corned). As a resut, te îgs and ows o star managers and teîr reevance to te wîder îndustry are expored în tîs book, at te very east to provîde some orm o înstîtutîona memory wîc ï tînk îs împortant not to ose wen consîderîng te und management busînesses o today and tomorrow. ïn a sîmîar way, te post-Brexît word mîgt make ît easîer to orget te împortance o EU reguatîons în epîng te growt o te European unds îndustry (încudîng te UK). Brîtîs and US Irms recognîzed te commer- cîa possîbîîtîes ofered by te EU’s UCïTS dîrectîve în te ate 1990s and

ix

THE ECONOMICS OF FUND MANAGEMENT

never ooked back. More recenty, te vast majorîty o UK and European asset managers ave embraced te need or envîronmenta, socîa and governance (ESG) consîderatîons – or at east recognîzed te need to pay îp servîce to tîs. here are aso some Irms tat are soutîng about ow tey ave been ESG învestors or many years. Ony a very ew are turnîng teîr backs on ESG atogeter. As Irms grappe wît întegratîng non-Inancîa consîdera- tîons înto teîr învestment process, ît does seem as toug asset managers are movîng înto te next pase o teîr evoutîon, even î ît îs unîkey tat aspects suc as te appea o star managers wî ade atogeter. Wat asn’t canged îs te pus or încreased proItabîîty, wîc îs wy seeîng sustaînabe învestîng as a saes opportunîty as te potentîa to be so toxîc and wy te prase “greenwasîng” îs beîng trown around so requenty. ProItabîîty îs one o te aurîng eatures o runnîng an asset management busîness, so ît îs peraps surprîsîng ow tîs aspect o te îndustry seems underexpored. hîs îs not to say tat a Irms are proItabe, but certaîny an asset management Irm does not ave to be a îg-Lyer to be îgy proIt- abe. Yet quîte a ew în te îndustry seemed taken aback by te UK Inancîa reguator’s Indîngs în te înterîm report or îts asset management market study (pubîsed în November 2016). Here te Fînancîa Conduct Autorîty aîd out te reatîve operatîng margîns or UK companîes în dîferent îndustry groups, wît asset managers averagîng between 34 and 39 per cent în eac o te sîx years anaysed. he FCA ound tat “îndustry groups wît sîmîar busîness structures (îg uman capîta, reatîvey ow pysîca or Inancîa capîta) ound margîns în te 4% to 33% range”. Ha o te asset management Irms în te FCA’s sampe ad an average operatîng margîn above 30 per cent and tree quarters ad an average operatîng margîn above 20 per cent. he FCA’s subsequent wîîngness to try and întervene on cargîng eves (vîa new responsîbîîtîes or autorîzed und managers’ boards) socked many în te îndustry wo were used to te market beîng reîed on to take care o suc îssues. he FCA’s actîons were peraps more surprîsîng ater ess tan ten years sînce te sake-up în saes practîces troug te Retaî Dîstrîbutîon Revîew. Wît EU reguators consîderîng weter tere îs a need or sîmîar înterventîons, and wît competîtîve pressures rom ower cargîng unds, tîs îs no tîme or actîve asset managers to rest easy. hîs aso means ît îs te rîgt tîme to be consîderîng ow tese Irms generate revenues and înteract wît cîents.

x