GLOBAL - The asset management industry has a role in understanding and representing the interests of its asset-owner clients in ongoing discussions with regulators, argued Mike Karpik, head of investments and fund products for State Street Global Advisors in EMEA, at a briefing in London today.
Introducing State Street's latest Vision Focus report, 'The changing Shape of European Investment Management', Karpik and his colleague Marty Dobbins, managing director for State Street in Luxembourg and chair of its management board, also noted that the recent shift in regulatory efforts away from the enhancement of market efficiency that characterised UCITS III and MiFID toward matters of investment protection in UCITS IV and V, MiFID II and other, more retail-focused regulations should result in significant changes to asset management business practices.
"In product development, there is growing importance attached to knowing who your target market is as the differentiation between retail and institutional or professional investors becomes sharper," said Karpik.
"For example, it is possible MiFID II will define 'complex' and 'non-complex' products that may or may not be sold to retail investors. And on the institutional side, regulation like Solvency II will certainly require greater frequency of reporting and more transparency. If you want to target insurance-industry investors, you have to ensure you have the operational infrastructure in place to meet those regulatory requirements.
"Before, an asset manager could develop a huge range of investment strategies and then think about how it would rationalise the products for different end investors at a later stage. Now the industry will need to be much more deliberate about target markets from a much earlier stage of product development - because every subsequent stage has a cost attached."
Karpik observed that many institutional clients are already demanding the kind of standards of transparency that will now be required of their asset managers under new regulations - and they are doing so because they have their own regulatory standards to meet, or as a response to the financial crisis, or both.
As such, he said: "Investors have always been part of the solution."
However, when asked whether he thought large institutional asset owners like pension funds did enough to "back up" the asset management industry before regulators on matters where their interests were clearly aligned, Karpik preferred to emphasise the responsibility asset managers have to represent the interests of those clients.
"Our interests are not misaligned - after all, they are our clients," he said. "But our job is to sit with them and understand their perspective and their needs, as well as discuss with them what a responsible approach to investment management looks like, and then take that experience to our dialogue with regulators.
"That way we can shape the way the regulators see the wider industry. It's also important our industry do this with one voice, in the way the banking industry has successfully done in the past, for instance."