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Supplements » Luxembourg 2015

INSIDE VIEW: The tipping point for transparency

Tipping pointIn asset management, operational change is not only a necessary response to regulation but an opportunity for firms to become more successful, says  Thomas Pfister of Confluence.

While the financial crisis of 2008-09 may seem a distant memory to some, its impact on asset managers is just now reaching a tipping point, as the industry is feeling the very real and resounding pressure of intense regulatory oversight and investor scrutiny. The strain this pressure has placed on the asset management industry is a call for operational change, and how firms react is an opportunity to succeed or a formula to fail.

Risk management and transparency are high on the asset management industry’s agenda – and are expected to stay there for the foreseeable future. Perhaps no example is more prominent and wide-ranging as the Alternative Investment Fund Managers Directive (AIFMD). 

The directive has seized the attention of market players in the European alternative asset management space as they were faced with adjusting all aspects of their businesses to comply with it – from remuneration and valuation policies to complex and localised transparency reporting requirements transposed into law by the national competent regulators. 

AIFMD has been a tumultuous and extraordinarily time-consuming challenge. Its complex data-filing requirements required sourcing more than 400 data points, many not ever captured in existing internal systems or previously reported. 

Satisfying the directive also required integration with external data providers and third-party administrators and required asset managers to file in multiple regulatory jurisdictions in various file formats.

As the industry continues to refine its response to AIFMD, asset managers are realising that continuous and increasing transparency demands are here to stay. It’s a new normal that will require asset managers to rethink their business models and transform their operations and strategic data-management practices. 

Multiple reforms
Predicting the nuances of the next wave of regulatory change is a near-impossible task, but accepting that it’s imminent isn’t. Imagine the collective impact of multiple AIFMD-like reforms and their potential to negatively impact profitability and fund returns. It’s a burden that businesses that deal with each regulation as a separate and unique challenge cannot bear. 

That inevitable reality is the tipping point that is forcing the industry to take a longer-term view of the situation and imagine operational strategies to meeting growing investor and regulatory transparency demands that will not only provide operational efficiency, but also a platform for sustainable growth and profitability. 

Intense and increasing demands for transparency from investors and regulators are rendering traditional responses obsolete. The new definition of success requires an operational model that is highly productive and efficient and has the flexibility of scale to meet growth demands. 

Asset managers need a genuinely flexible, technology-enabled model that allows them not only to meet existing regulatory mandates readily,
but also prepares them for future ones that are undefined with speed and agility. 

Consequently, treating data as a strategic asset rather than a non-core back-office function is now at the heart of the new norm, and this requires a cost-effective, flexible data platform that can respond to regulatory requirements that have not yet been finalised or that firms have not yet assessed. 

At the tipping point, the greatest opportunity is competitive advantage. 

The move away from a short-term approach focused on tactical solutions to one that embraces a long-term strategy and enterprise-wide data aggregation will be the defining difference between success and failure.

Thomas Pfister is manager, EMEA market management, at Confluence

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