Faced With New Challenges, Market Experts See Opportunities

The advent of new regulations marks a key moment in the asset management industry.

But what are those on the front lines of investing actually thinking?

As an assortment of senior buy-side leaders shared during this year’s SIFMA Annual Meeting, the thinking goes beyond industry-specific issues like market structure and liquidity, and affects every aspect of financial management.

Assessing the new financial landscape  

“There’s just been a tsunami of regulatory change,” explained Doug Hodge, Chief Executive Officer of PIMCO.

Those new regulations regarding compliance have resulted in new costs for the investment management industry. Hodge shared that addressing regulatory logistics, meeting higher margin requirements, and employing more compliance officers resulted in “considerably higher costs of doing business.” Additionally, the new rules have the potential to “turn relatively nimble organizations into more functionally heavy ones,” according to Robert G. Leary, Executive Vice President and President of TIAA-CREF Asset Management.

But with those challenges come opportunities.

“I think we would all agree that having a ‘safer neighborhood’ is better for all of us,” Hodge explained. “It inspires trust among our investors, our clients, and our industry. It brings capital back into the markets. These are all systemic goods for our industry and the economy.” Leary agreed, noting that these challenges have “brought our game even higher, especially when it comes to compliance, risk, stress-testing.”

“That this is happening across the industry, that ups our game and gives investors more confidence,” Leary said.

Liquidity and the law  

The panel of experts also hammered home how liquid the United States’ capital markets are: with about 15 trillion in fixed income trading every month, it is “a very large, albeit generally, liquid market,” Hodge said.

But will regulation have a negative effect on the markets’ ability to remain fluid? The panel offered varying perspectives.

“We feel like we don’t know what the future is going to bring in the sense that it is very different now,” explained George H. Walker, Chairman and Chief Executive Officer of Neuberger Berman, in a discussion about how banks that have traditionally provided liquidity are now being limited by rules. “It’s changed the dialog we have at the board level…we feel like we’re in a new world.”

However, when it comes to individual investors with retirement plans, Leary wasn’t sure that concerns about liquidity were resonating. Instead, those investors are remaining positive, even in difficult periods. “In our retirement platform, during times of crisis, investors tend to not look for liquidity – they tend to sit tight, and we tend to see inflows.”

What it all means for clients  

Today, three-quarters of wealth is saved for those approaching or in retirement – and, as a result, responsibility is shifting from institutional investor to individual investors. Additionally, a projected growth of billions in the global middle class over the coming decades means that firms must adapt to the solutions individual clients are looking for.

As those populations – and that wealth – mature, the question is actually straightforward: How will investment professionals ensure those assets are protected and continually enhanced throughout the clients’ lifetime?

“What investors are looking for is a far more differentiated set of solutions,” explained Hodge. “What [that] calls for is intelligent products and creative strategies, ones that are appropriate for the investor base we serve.”

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Tim Cameron

Managing Director, Asset Management Group

SIFMA