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MiFID II will squeeze out smaller asset managers

Business_consolidationRevised capital market rules, known as MiFID II, will lead to a rise in consolidations in the asset management industry, according to a report by global research and consultancy firm, Cerulli.

The Europe edition of The Cerulli Edge, a quarterly publication, said rules on costs disclosure, particularly around research, would put margins under additional pressure, making it difficult for smaller asset managers to remain competitive and thereby leading to a rise in consolidations.

In addition regulatory changes are stifling product innovation in Europe's asset management industry, it said.

Other factors included limited shelf space at platforms, a focus on consolidation and on increasing assets of existing products, saturation in certain asset classes and a lack of expertise in popular ones.

The report said that over eight in ten of asset managers surveyed are looking to beef-up their resources in absolute-return products. Around one in three are planning to focus more on private debt, long/short risk premia, real estate debt, and infrastructure debt.

Nearly 90% said they expected a growth in the number of European distributors using subadvisors over the next two years. This trend will further bolster customization.

Angelos Gousios, director, European Retail Research, at Cerulli, said: "The FCA has been at pains to suggest that some asset managers have taken short cuts on the product design process. The retort from managers is that regulation is inhibiting innovation and could eventually lead to unduly restricted choice.”

He added that managers wanted to innovate, but were constrained by regulation that does not encourage or reward risk-takers because of the understandable focus on protecting the investor.

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