Asset managers troubled by regulatory cost

Two-thirds of New Zealand asset owners and managers are losing sleep over their regulatory requirements, a new survey has shown.

Friday, September 5th 2014, 6:00AM

by Susan Edmunds

BNP Paribas Securities Services’ latest Asset Administration and Custody Review was undertaken to gauge the industry’s outlook on the changing market, including shifts in investors' appetite, growth in cross-border funds, regulatory changes and increasing complexity.

Head of location NZ Doug Cameron said: “The review found the top issue that keeps those in the industry awake of an evening is government regulation. Two-thirds (67%) are losing sleep over it.”

Almost 90% said they were incurring larger costs because of their regulatory requirements, which could not be easily passed to end investors.

The most concerning operational issue for those surveyed was risk management. Improving risk analytics and the risk-return profile of their portfolios worried more than two-thirds of respondents.

Cameron said: “More than half want a better understanding of their investment risk, with two out of five not satisfied with their risk reporting.”

Guy McKanna, BNP Paribas’ head of brand in New Zealand, said everyone was used to measuring performance against a benchmark or against their competitors, or discussing absolute returns. “We think the next point should be ‘are you getting that return without having to take a great risk’… If someone has consistently good returns with lower risk, they’re the ones you want to be with.”

New Zealand asset managers trading internationally were using large international custodians to help them manage their international regulatory requirements, he said.

Two out of five in the survey used external custodians to help them manage regulation.

“As you diversify, you want to reduce risk and have to go global. If you’re invested in that market you’re captured by those regulations… the way to do it is find a custodian who’s got that global set-up already. That’s why there are no Kiwi custodians, you have to partner with someone.”

Data management was a concern for a third of the industry, as was how to further reduce costs.

Cameron said: “Several respondents report that by outsourcing non-core administrative functions they have been able to better focus on managing their investments and generating value for their stakeholders.”

The majority of respondents were asset managers (30%) and owners (pension funds 26%, endowments 5% and Sovereign Wealth Funds 3%) with 10% bank asset managers.

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