Buyside beware

15 March 2016 By Dominic Elliott

Asset gatherers’ costs could rise by 3 pct a year, new research estimates. As at investment banks, misconduct fines and negative rates could be painful. Bank capital rules are also forcing money managers to spend to offset scarcer financing and lower trading volumes.

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Asset managers are beginning to suffer the consequences of new bank regulations brought in following the financial crisis of 2008, a joint study by consultancy Oliver Wyman and Morgan Stanley has found.

The pair warned that investors might be underestimating the scale of misconduct fines that could hit the fund management industry. The study said these costs together with those for compliance and upgrading trading and liquidity management to offset lesser bank trading could push costs for the industry up 3 percent per annum, or by $5 billion to $7 billion.

For investment banks, the study said more cost cuts were needed. “Our base case sees revenues down about 10 percent in 2016, putting ever greater pressure on management teams to act,” said the joint study by Morgan Stanley and Oliver Wyman.

Such a fall would leave fixed income, currencies and commodities (FICC) revenues down about 30 percent since 2013 and wholesale banking fee pools lower as a proportion of GDP than at any time since 1995, apart from during the financial crisis.

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