By Nick Evans
Few central bankers have emerged from the financial crisis
with their reputations more burnished than Andy Haldane - the
former executive director for financial stability and now chief
economist at the Bank of England, and a man widely seen as the
Old Lady's rising star.
So when Haldane made a speech to the London Business
School's Asset Management Conference recently entitled "The age
of asset management?", it was a pretty strong signal that asset
management is now somewhere near the top of the agenda for the
world's key regulators and policy-makers.
That may not necessarily be a good thing in every respect,
needless to say. Increased official scrutiny of investment
managers will inevitably bring increased burdens and increased
But it is an important recognition of the central - and
increasingly influential - role that the asset management
sector plays in the global financial system, in a
transformative period of change when banks are shrinking under
the weight of new regulation and more conservative
And it underlines the key function that asset managers can
and must perform in financing the economy, at a time when banks
are pulling back from some of their traditional financing and
risk-taking activities - and at a time when enterprises of all
shapes and sizes need to develop new sources of finance to fill
the gaps left by the banks' retreat and to stimulate global
Clearly the primary and vitally important purpose of asset
managers is to manage the ever-growing savings and wealth of
institutional and individual investors around the world, at a
time when it is more critical than ever that those are managed
in the best and smartest possible way - a purpose in which
hedge funds are now widely accepted to have an essential role
But the opportunities for asset managers, hedge funds
included, to move into new areas are huge - and growing by the
day. As a recent academic paper commissioned by AIMA made
clear, hedge funds and other types of asset managers have an
increasingly significant part to play in financing economies,
companies and growth.
It is entirely in the interest of politicians and regulators
to enable that to happen, by encouraging the development of
capital market financing sources outside the shrinking banking
Shadow banking (a horrible phrase, but one that is here to
stay) is a big theme, and a big trend. Already it is enabling
hedge funds to get into all kinds of new areas and new
businesses. And encouragingly, the signs are that a more
reasoned public policy debate is starting to get going as to
the contribution that shadow banking can make.
As a recent investment management paper from KPMG said: "The
shrinking of the banking sector has thrust asset management to
the heart of global capital flows. That creates huge
opportunities for investment managers. But it also marks a
step-change in the scrutiny of the sector."
Shadow banking will be one area where there will be more
scrutiny, and rightly so. But regulation and increased
oversight will more broadly be an inevitable fact of life in a
world that is still trying to recover from the greatest
financial catastrophe that has been seen for generations.
The new regulations may well not be perfect - and in some
cases they may well do more harm than good. That is always the
way. But all one can really ask for in regulation at the end of
the day is clarity - and that is now largely here.
It is the lack of clarity and certainty over the last few
years that has been so damaging to hedge funds over the last
few years. But with AIFMD coming into effect next month, and
with other major pieces of new regulation such as Volcker,
EMIR, FATCA and new UCITS frameworks either in place or close
to being finalised, the regulatory landscape for asset managers
is a good deal clearer than it was.
As the KPMG paper goes on to say: "It may just transpire
that 2014 is the year when the wheel turned and regulation
became less of a minefield and more of an opportunity."
At a top-tier policy-making level, the recognition that some
asset managers (only the very largest ones, though) are
systemically important marks a critical shift in the way that
asset management is seen and treated. There are pluses and
minuses to that, of course. But the opportunities for growth
and profitability are huge.
PwC estimates that the global asset management industry will
grow by 50% from $64 trillion to $100 trillion by 2020. Citi
reckons that hedge fund industry assets will double in the next
five years. McKinsey reports that profitability in the asset
management industry is back above pre-crisis levels - despite
the rising compliance and compensation costs. There is optimism
wherever you look.
The price will be greater scrutiny, more regulation and
increased costs. But the prize is a much larger world in which
to operate, a much wider pool of investors with which to
engage, and a much richer opportunity set all round. So, on
balance, the prize should be well worth the price. And it is
quite possible - perhaps very likely - that this will indeed be
'the age of asset management'.