EUROPE - Asset liability management advice is unlikely to become a low skill, commodity business, according to F&C Asset Management.
Commenting on a recent report by Investit Intelligence warning investment managers to “think twice” before leaping on the LDI bandwagon, Derek McLean, head of asset liability management and insurance, said he did not agree that all liability immunisation products would become devalued.
"Whilst it is certainly true that some of the tools used in the ALM space will become much more commodity like, such as index funds and LDI interest rate hedges, ALM advice is very unlikely to become a low skill, commodity business,” he said.
“The models used in this area and the problems being addressed are highly complicated and they require sophisticated model building. The successful fund managers will be those who combine these skills with excellent dealing ability to put on much more complex approaches.”
The Investit report highlighted two key obstacles to managers looking to enter the LDI market for the first time: the high level of investment that would be needed by the firm, both in financial terms, time and training, and secondly the fact that “liability immunisation products will become a utility, like indexation, and there will be little margin in it for anyone but the big volume providers”.
McLean agreed with the first point, stating: “Not every fund manager has the skill or resource to succeed in the LDI arena. A high quality LDI platform is a significant investment for a business and this, without doubt, is a major barrier to entry.”
He added: "A number of fund managers are speaking about their ambitions in LDI, whilst actually only having one or two individuals doing some of this work part-time. As this becomes more highly developed it will become increasingly obvious that such an approach is untenable.”
However Con Keating (pictured), principal at the Finance Development Centre, said that Investit was right to warn against chasing liability driven investment business, which he saw an unviable methodology.
He estimated that less than 10% of investmenrt managers offering LDI were actually making money, stating that there was simply not enough demand to support all the interested parties.
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