A new regulatory environment in the Italian asset management industry could be a boon for international players as domestic firms may consider selling due to more stringent capital requirements, a study by RBC Dexia and Ernst & Young has found.
The Italian asset management industry is showing a clear trend towards asset management market aggregation and a progressive rise in the relevance of non-domestic players, according to the study which included 21 asset management firms making up about 80 per cent of the $1.3 trillion industry.
It found a strengthening of the globalisation process within the industry will occur because of the entrance of new non-domestic players through the acquisition of Italian asset management companies.
Just over 80 per cent of the interviewees are concerned that investors could switch to foreign products because of their superior performance track record, which is now considered the most important factor for institutional investment decisions, ahead of an asset manager’s experience or reputation.
The conduit in part, is the new regulatory framework provided by Basel 3, which requires more stringent capital constraints that could lead some Italian banking groups to sell their asset management companies to rationalise their businesses and shed those asset classes which are not considered strategic.
As with consolidation in other markets, the survey found the result would be increasing polarisation between large groups and small specialised niche players.
With respect to investment activities the survey found:
- product strategies will require a focus on active management with flexible asset allocation and total return funds
- geographical areas that are seen as most interesting are Asia/Pacific and Central/South America
- asset classes that will represent the best investment solutions will be equity, bonds and balanced portfolios
In addition to industry trends, respondents said there was a requirement to review their business models and operational organisations through the use of strategic plans that would focus on core business, more frequent use of outsourcing of administration and backoffice functions, and higher co-ordination among control and risk management functions.
While the survey found a cautious optimism has returned among Italian managers – just over half believe that the worst is behind them and that inflows will recover in 2011 – an overwhelming majority (94 per cent) indicate risk aversion has risen significantly.
This reduction in investors’ risk appetite is considered to be one of the most significant drivers for product innovation (47 per cent), along with client demand for more flexible asset allocation (77 per cent).
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