Asset Management

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Asset Management Industry OutlookEIJA
HIETAVUO, Head of Investment Management Markets,
Reuters EMEA
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Agenda Industry trends and Outlook

• Overview of the Asset Management markets
• Biggest markets in AuM, Conventional Asset
  Management
• Biggest markets in AuM, Hedge funds
• The Asset Management industry
• Past and future of the AM industry
• Some general highlights on the AM market
• What is happening now in the AM Industry
• The AM industry in 2010 trends visions
• What does this mean to Asset Managers in terms of
  Financial Information Management?

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Overview of the Asset Management markets
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Biggest markets in AuM Conventional Asset
Management

• gt Major Markets concentrate 79 of the AuM growth
• gt Global AuM were 55 USD trillion in 2005, 10
  growth from 2004 and 54 from 2002
• gt We can estimate industry CAGR of 6 from end
  2005 through 2010 if current economic trends
  remain
• gt Concentration of the industry has grown in
  recent years. AuM of world's largest 500 fund
  managers increased 13 in 2004 and 22 in 2003

Major Markets concentrate 79 of the AuM 55 USD
trillion in 2005
EUROPE 10,992 bn 20
NETH. 1172 3
USA 26,489 bn 48
SWITZ 923 2
UKI 4,061 7
GERM 1781 3
FR 3055 6
JAPAN 6,153 bn 11
Source International Financial Services, London,
Fund Management, City Business, 2005 data, fund
management of conventional assets (does not
include alternative investments) AuM Assets
under management Conventional assets include
pension, insurance and mutual funds
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Biggest markets in AuM Hedge funds

• gt Hedge Fund industry AuM totalled USD 1,500bn in
  2006 up a third from 2005 and twice 2003
• gt Number of Hedge funds raised 5 from 2005 to
  2006
• gt While the USA remains major location for hedge
  fund managers, Europe has doubled his share from
  2002 to 2006 and Asia grew from 5 to 8 in the
  same period
• gt New York and London are the most important
  Hedge Fund locations
• gt In Asia, Australia is the most important
  location for management of Asia-pacific Hedge
  funds (1/4 of AuM), followed by Japan with (1/5)
  and Hong Kong with 14

High Concentration on Geographical distribution
of Hedge Funds AuM USD 1,500 bn in 2006
USA 66
EUROPE 24
ASIA 8
Source International Financial Services, London,
Hedge funds, City Business, 2006 data
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The Asset Managementindustry past future
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Past and future of the AM industry

• The Evolutionary path since the bubble burst in
  2000
• Retail and Institutional markets have drifted
  apart
• Industry has professionalized
• World has extended to include newer markets,
  stimulating emergence of new breed international
  players
• Looking forward on tomorrows IM world, to
  summarize
• There will be growth but it will not be shared
  equally among players, markets or products
• The industry structure will gradually polarize,
  and generic asset managers will cede market share
  to their differentiated brethren
• Industry will open up to an even global level
  were cross border competition will result in
  greater concentration of players
• The universe of investable assets is growing,
  therefore giving opportunity to fund managers to
  better diversify and search for performance
• Intensification of the war for talent

Source Will the goose keep laying golden eggs?,
October 2006 The eight annual survey on the
profitability of European Asset management,
McKinsey Company Source 2015 the radical
redesign of the asset management chessboard,
McKinsey Company, 2007
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Some highlights on AM Market

• Key facts on the AM industry
• Capital Markets have been a strong driver of AuM
  Growth globally
• Industry Profitability has improved significantly
  
• Household financial asset allocation to the Asset
  Management products (funds) is expected to raise
  dramatically in the following years
• The major opportunities for the industry are
  derived from
• The need from retail investors to have new asset
  management products (funds) to fit their
  investment needs
• The demographic pressures and the state pension
  insufficiency to cover cost of living that
  requires retirement private savings done via
  asset management products (pension and other
  funds)
• The stunning emerging market wealth growth in
  some countries (specially India, China, Gulf
  States, Brazil and CEE)

Source Setting Your Sights on a New Horizon,
Roberts Taglioni, January 2006, McKinsey
Company
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What is happening now in the AM Industry

• The Global Fund Manager Survey by Merrill Lynch
  in October 2007
• Fear of Slowdown in Global and European growth as
  a result of the Credit Crisis
• The Asset Allocators
• Continue to increase their preference for
  equities over bonds
• Prefer sovereign bonds over corporate bonds
• Choose large caps over small caps
• Adopt growth over value strategies
• Choose the technology, materials and industrials
  over the rest
• Investors have been increasing exposure to
  emerging markets
• JP Morgan 2007 Alternative Asset Survey (Nov
  2007)
• Desire to diversify drives big push into
  alternative assets more than EUR 1000 bn
  investment in next 2-4 years
• From Private Equity, Real estate to Second wave
  Alternatives like Infrastructure Assets,
  Commodities and Shipping, Timber and Clean Energy

Source The Global Fund Manager Survey, Merrill
Lynch,, Investment Strategy, July 2007
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The AM industry in 2010 Key trends

• Key trends that will increasingly shape the
  sources of industry growth and profitability over
  the next few years
• Move from accumulation to income and risk
  management
• Move from relative performance to outcome
  orientation
• Separation of Alpha and Beta
• Pension restructuring
• Institutionalization of retail sales
• Increasing role of marketing and client service
• Convergence and evolution of alternative
  investments
• Growing internationalization and diversification
  of assets

Source The Asset Management Industry in 2010,
Bigger, sometimes better and the best pulling
away, McKinsey Company 2006
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The AM industry in 2010 (II) Major
characteristics

• The trends mentioned in previous slide will
  influence structure and dynamics of the asset
  management industry
• By 2010 leading players will look very different
  than they do today in terms of size, capabilities
  and products. 5 major differences will
  characterize the industry and its leaders
• Driving scale to generate a winning edge scale,
  multi-boutique and focused asset players
• Different earnings profile for traditional asset
  managers new products
• A shakeout of sorts in the alternative
  investment industry more focused business
  models, transparency and players concentration
• A more crowded and complicated industry
  landscape.
• A measured pace for mergers and acquisitions that
  will depend on the Asset Manager profile and
  size, dominant model will be multi-boutique

Source The Asset Management Industry in 2010,
Bigger, sometimes better and the best pulling
away, McKinsey and Company 2006
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Europe What is Happening here?

• Domestic niches under threat focus on
  cross-border sales
• UCITS III
• 70 of European funds are UCITS, pa growth 20
• Demand for new distribution channels
• Retail banks vs. IFAs and insurance companies
• Product development hot topic in 2008
• Extended powers with UCITS III
• Focus on alternative assets, LDI and complex
  investment strategies
• Hedge Funds
• From institutional to Retail
• Regulation
• MiFid, KYC/AML, UCITSIII
• Pensions
• LDI driving shift from equities to bonds and
  other asset classes
• Cash flow matching approach to investment using
  bonds to create a porfolio which matches the
  expected liability ouflows
• Socially and Environmentally Responsible
  Investment, Islamic Finance

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What does all this mean to AM Technology

• Architecture and Integration improve
  infrastructure to support top-line revenue growth
• Order Management and execution management systems
• Reference Data Management
• Derivatives Processing
• Legacy replacement/Extension
• Post-trade automation/workflow
• Portfolio Analytics
• Business continuity
• Broker Management technologies
• CRM systems

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What does all this mean to AM Compliance

• Tactical Compliance
• Compliance with AML/KYC
• Know your Customer CRM
• Operational Risk Management
• Compliance with UCITS III
• Value at Risk
• Client reporting
• Compliance with MiFiD
• Trade reporting

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What does this mean to AM Information
Requirements?
Buy Side Intermediation
Retail Investors High Net Worth Individuals
Plan Sponsors, Trustees
Pension Funds
State Funds
Corporate
Private Assets
Asset Allocation Decision
Asset Managers
Hedge Funds
Private Equity
Alternative
Commodity Pricing Real time Derivatives Real
Estate Ecowin
Lipper Funds Fundamental Economic data Corax Real
Time ICW Estimates/Starmine Global Filings
Private Company MA Multiples IPO
Deals Credit Institutional Holdings Economic
data Fundas/Estimates People
Fundamentals News Feeds Tick Data Estimates Econom
ics MA Low Latency
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