Saving Money – October 2016

Saving money seems to be top of mind for investment managers, particularly on cost of infrastructure…we call it Total Cost of Ownership at Paddock, and it refers to the growing costs of supporting technology and third party providers, from front to middle to back office…SEI’s recent paper on the costs of middle office show upwards of 36% of a managers overall spend is directly associated with infrastructure…second to compensation…if managers are running their shops “as a business” these cost are alarming…and growing…in the face of distribution challenges, and regulatory purgatory…

Private Equity markets are booming, with capital seekers running to private sources in funding in the face of the bank’s systematic withdrawal from massive lending…see BNYMellon’s piece on the global growth of these markets, and the pressures of funds being able to build operational models to support eh structures…that means private equity administration is suddenly vogue and an attractive investable commodity…we see funds want to own a piece of the admin services action, with little to buy in the market…this scarcity value will bump up the multiples that investors will pay for service providers…hmm, admin in vogue?!…

Wealth management take center stage with fund managers and advisors…how to capture more market, and do it for less…this has fostered the digitization of the wealth management space, or, affectionately, the Robo Advisor space…manager cringe at the thought that millennial wealth management clients would rather select an advisor while watching Netflix, than at a polo game…how to handle to costs of these digitally delivered products…a topic that is confronted daily at Paddock…especially when the actual investment instruments are ETF bundles or managed accounts of some sorts…Vanguard can do it, with an advisor available to chat, for 25bp…how does the RIA community react to that?…

Speaking of ETF’s, a good read is PWC’s latest paper on the global expansion, no explosion, of ETF’s…global custodian turn pale, and investment managers realize that if they don’t have their strategies in these products, they will be competitively expensive…meaning less competitive…ETF growth disruptive in many ways, pressuring back office efficiencies as well as cost and infrastructure management…

Leading to the FinTech space..Lookout for our upcoming regular feature – 3 Questions with…-where we will spotlight one of the movers & shakers in our industry…our first post of this series will feature Steve McClaughlin of FT Partners on his view of the disruptive – or disjointed – impact of the many tech companies developing products in the financial services space…

Finally, if costs and products and regulations proliferation wasn’t enough, manager success is dependent on growth…capital raising is still top of mind…job #1…but what wins with today’s discerning retail and institutional consumers?…Brand, performance, safety, price?..remind me of the joke where a dog food company Chairman asks his employees why, if they have the best company and best salespeople, revenue is down?…their response: because the dogs don’t like the food…send us a note on your thoughts around your barn…’Til then…Bill