Investment Managers Divided Over Future Prospects
Friday, November 11, 2011

While the majority of investment managers are optimistic about their firm's prospects for the next three years, there has been a sharp rise in the number of those who are concerned about the future, according to a poll released on November 10 by SEI, a provider of asset management and investment processing services.

The poll, conducted at SEI’s annual CFO Forum for Alternative Investment Managers in London, found that positive market prospects were the main reason why 57% of the respondents are optimistic about their future prospects. However, the remaining 43% were pessimistic about the three year outlook for their firms, a substantial increase from the 12% who expressed a similar view in a poll conducted in April.

Of those with a pessimistic outlook, most cited negative market prospects, weak branding, and uncompetitive performance as prominent concerns. Additionally, 44% of participants revealed that economic uncertainty will be the most significant challenge facing the industry in the near future.

Also weighing heavily on the minds of investment managers is the regulatory climate. Two-thirds (67%) of those polled listed regulation as a critical consideration in domicile selection. Furthermore, respondents argued that satisfying regulatory requirements is their firm’s greatest operational challenge, even more so than satisfying investor expectations.

However, according to the survey, managers still have their focus on investors, especially given that a majority (55%) indicated that investor confidence is worse or has not improved since the aftermath of the financial crisis. Heightened due diligence requirements, as well as the increased transparency investors are looking for when it comes to understanding where and how returns are generated, were also cited as concerns.

“Optimism is understandably tenuous at present since investment managers are facing an empowered investor base, an avalanche of regulations, and an uncertain economic climate.” said Phil Masterson, Managing Director for SEI’s Investment Manager Services division. “However, it’s reassuring to see that firms continue to focus on the future and work on identifying growth opportunities. It is clear that managers are under pressure and need help from their partners in order to focus on their core business and ultimately thrive in the uncertain economic climate and unrelenting regulatory environment.”

When identifying where they see opportunities, respondents pinpointed institutional assets as the biggest contributor to future growth, with only 11% believing organic growth would be a key factor. When focusing more specifically on the investor types or channels that promise the greatest growth, investment managers cited pension plans. The vast majority (73%) also stated that there will be a substantial increase in interest towards hedge fund compliant UCITS funds over the next year.