11/1/2010
By Sophie Baker
European investment fund asset managers are not seeing the operational cost reductions that they assumed would be brought about by the new Undertaking for Collective Investment in Transferable Securities IV Directive (UCITS IV), says Ernst & Young.
However, a survey conducted by the firm did find that these managers are still funding benefits around business model alignment, and in a poll of 98 participants, 49 per cent said that business model alignment with UCITS IV was the biggest driver for improving their operating model. Cost efficiency attracted only 37 per cent.
"Many fund managers assumed that UCITS IV would offer significant opportunity to reduce operational cost," said Crispin Rolt, UCITS IV leader at Ernst & Young. "However, as asset managers look at UCITS IV in more detail, in many cases they realise that the cost reduction opportunity is of a smaller magnitude than initially expected. The focus has turned to using UCITS IV to optimise the operating model and fund ranges, to align better with the business strategy of the organisation. The investor will still benefit and by pooling funds it is anticipated that there will be opportunity to reduce some of the expense borne by the fund."
When it comes to optimising the fund range, 43 per cent said operational efficiency was their top driver, 29 per cent said cost reduction, and 28 per cent distribution benefits.
"Operational efficiency is a key feature of UCITS IV, and it will bring benefits to managers through a more scalable fund range. Changes under the Directive will improve distribution opportunities, bringing speedier entry into new markets and that should be the leading driver for managers distributing products cross-border."
The implementation deadline of July 2011 does not seem to be troubling one fifth of the funds polled, which have not started work relating to the new UCITS IV. Less than a third have started to work on the way to implementation either by appointing a steering committee or conducting high level analysis.
"Fund managers really must set aside time to consider and plan for UCITS IV and realise the opportunities it offers, particularly around operational efficiency and achieving improved business strategies. It is essential that work starts sooner rather than later if asset managers are to gain the competitive edge in 2010 and beyond," added Rolt.
