UK- Former CIO of Phillips & Drew Tony Dye has told a gathering of 400 asset managers in London that the fund management industry will consolidate into large firms focusing on marketing following the court case between the Unilever pension fund and Merrill Lynch Investment Managers.
Speaking at a debate on the consequences of the six week hearing, Dye said trustees have become fearful of underperformance or excessive risk and will consequently err towards using larger investment managers who are likely to have the wherewithal to pay if sued.
“Firms will be less likely to take risks. They will use central lists of stocks to be chosen for portfolios and centrally-imposed limits on sector divergences. There will be less need for individual fund managers and the real resources will be devoted to marketing and the need to support these marketing efforts will lead to consolidation within the industry,” he said.
Anxious trustees are also likely to look upon indexed management or enhanced management more favourably as a guarantee against severe underperformance. He predicted the case will maintain the continued switch towards passive management.
He also said the trial is likely to push the issue of consultants’ accountability into the limelight. Unilever’s consultants Frank Russell barely featured in the six week hearing. “The accountability of consultants is opaque at the moment and this is something that is going to become clearer.”
Jim MacLachlan, head of equity research at the debate’s co-sponsor Standards & Poor’s said: “the interest generated by this debate reflects the importance of this trial for the fund management industry. In particular it highlighted the need for greater transparency and objectivity amongst all parties involved in asset management. The consequences of this trial will have reverberations for the industry for many years to come.”