There's a battle outside / And it is ragin' / It'll soon shake your windows / And rattle your walls / For the times they are a-changin'. Bob Dylan wrote these words in 1963, but they seem to fit rather well in today’s climate, particularly within the finance industry.
Last week, US President Obama signalled a growing intolerance of excessive compensation within the banking industry when he called multi-million dollar bonuses taken by Wall Street bankers for 2008 “shameful” and “the height of irresponsibility”. It looks as though the new US administration is going to be shaking some windows and rattling some walls down in Lower Manhattan. And – let me nail my colours to the mast here, even though my friend Bob advises writers and critics not to speak too soon – quite right too.
When the finance industry isn’t being rapped on the knuckles, it’s being mocked. A recent cartoon in a UK daily broadsheet advised fat cats to put everything into dead dogs, but to “avoid dead dog futures and at all costs steer clear of dead dog futures derivatives.”
Where will it all end? In terms of the European asset management industry, the French institutional platform Multiratings says that it will end with one firm in two disappearing or being obliged to restructure. In the face of declining assets under management, disinvestment and falling commissions, firms will have to change or die, suggests Jean-François Bay of Multiratings.
UCITS IV, approved by the European Parliament on 13 January, will accelerate this movement as the new directive will sharpen competition, Bays says.
As always, however, from the ashes a phoenix shall rise. Certain sectors of the asset management industry will undoubtedly come out of this better than others, according to Multiratings, for example the ‘free beta’ sector, such as ETFs and index funds, and the ‘high alpha’ sector.
This doesn’t sound very new. In fact, it sounds like core-satellite. But Bay is really making the point that firms will have to be fleet of foot to grasp these future opportunities, and it’s pretty hard to disagree with that.
“The opening up of the European market, restructuring of the sector, reconstitution of risk premiums... the current crisis will for many be synonymous with change and therefore with opportunities for companies which propose innovative solutions with good performance that are above all adapted to the needs of investors,” he says.
Or, as Mr Dylan puts it: If your time to you / Is worth savin' / Then you better start swimmin' / Or you'll sink like a stone / For the times they are a-changin'.
Fional Rintoul, Editorial Director
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