EUROPE - Europe's fund management industry is poised for yet another face-lift as unrelenting market conditions continue to batter-down profits.
A new report from KPMG predicts greater consolidation across the industry, with many smaller players typically swallowed up by global rivals. At the very least, fund managers will be forced into a radical rethink of their business models.
In what makes gloomy reading for an industry already struggling for air, the short-term outlook offers little solace, particularly if stock markets continue to dip. In fact, some 40% of firms are set to report a loss in 2003, writes KPMG.
But there is some hope; fund managers will increasingly have a key role to play as Europe makes sweeping pension reforms.
David Ledster, global head of investment management and funds, KPMG (UK), said: “Indeed as European governments look increasingly to encourage individuals to save for their own futures and as private pension provision is increasingly called upon to lengthening retirement years, this role will become more vital.”
Meanwhile, KPMG has also identified emergent cracks in the European pensions industry, for example between “traditional alliances” such as the state, employer bodies and trade unions. The report highlights tensions in the UK stemming from the closure of defined benefit schemes, and the erosion of insurance company reserves as many are unable to maintain previous bonus levels on their with-profit pensions business. In the Netherlands, consensus between social partners on the development of pensions is under threat due to measures imposed by the Dutch pensions regulatory body (PVK) to improve solvency levels. The Swiss mandatory minimum design, which is required to guarantee investments of 4%, has come under fire from pension funds unable to meet these levels. And in France, government attempts to reform the unsustainable pay-as-you-go system have been met with crippling industrial action from trade unions.
On investments, KPMG also pointed to new hedge fund strategies in a bid to tempt investors away from traditional equity funds, while investor education remained an issue for the industry, added Ledster.
The use of IT outsourcing opportunities in the front, middle and back office areas also appeared to be back on the agenda with a commitment to increase implementation clearly visible, he said.
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