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Andy Milner

JP Morgan’s 2019 Alternatives Outlook

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Andy Milner

JPM's inaugural Alternatives Outlook Report highlights opportunities across hedge funds, private equity, private credit, real estate and real assets.

 

See more on the link.

 

AM.JPMORGAN.COM

Explore our 2019 Global Alternatives Outlook for ideas to help you navigate this shifting investment landscape in the upcoming 12- to 18-months.

 

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    • Luuk Jacobs
      By Luuk Jacobs
      The FCA Asset Management Market Study (AMMS) was launched in November 2015 with findings reported in April 2018 (PS18/8).  The implementation of AMMS by Authorised Fund Managers (AFM’s) is to be achieved by September 30, 2019. It includes ‘a package of remedies to ensure fund managers compete on the value they deliver, and act in the interests of the millions who entrust them with their savings’ according to the regulator.
       
      For the industry, this creates a new menu of rules and guidance covered by this directive. Not only are they widespread, but they bring SMCR into play as well. Here are four key areas which need to be planned for and adequately accommodated:
       
      a requirement for AFM’s to make an annual assessment of value (the “Value rule”), as part of their duty to act in the best interests of the investors in their funds a requirement for AFM’s to appoint a minimum of two independent directors to their boards the introduction of a new prescribed responsibility under the Senior Managers and Certification Regime (SMCR) to bring individual focus and accountability technical changes to (i) improve fairness around the way in which fund managers profit from investors buying and selling their funds and (ii) facilitate the movement of investors into cheaper share classes
      The impact of the above might seem rather like MiFID; just another regulation to comply with but thought through in more detail, it will have a material impact on the industry. The implications will have an impact on executive levels including NEDs and here’s how:

      The Chairman of the Board of the AFM (either executive or non executive ‘NED’) will become an SMCR position with the responsibility to ensure that the firm complies with its obligation to carry out the assessment of value, the duty to recruit independent directors, and the duty to act in the best interests of fund investors. This last element would, for example, include ensuring the appointed portfolio manager is the right one for the job. Currently these are usually longstanding appointments. This will add weight to the FCA’s requirements on assessing value for money and acting in the best interest of investors, and as a senior individual (the Chairman) will be held accountable.
       
      The question then becomes how the Board and Chairman get the information based on which they can make this assessment. Up until now most AFM Board members are executives of the Management company, with arguably limited external perspective and challenge to how the fund is operated ie a very tunnelled and internal view. These executive Board members might have a perceived knowledge of their company.
       
      A NED has the challenge to get independent understanding of the Asset Management Company and especially these days around the Risk and Control Management Framework, not just the fund strategy(ies), its performance and value for money. Hence which reports will the NED be provided with to ensure him/herself of the sustainability of performance and value for money?

      The UK industry manages £7 trillion in assets and firms offering products with particularly poor value for money may struggle to justify their offering and be put under pressure to reduce fees, improve the quality of service, or move investors into better value share classes.
      Equally, with no exemptions for the smaller players in the industry, this could even lead to closure of funds due to the additional cost for NED’s, providing of information and other associated admin. Over all, the industry will be a need to upgrade even further the Risk and Control Management Framework to ensure the Board’s working and for the Chairman to be able to sign off his/her SMCR duties.
       
      Being a NED in this environment of changed responsibility, greater emphasis on further investor protection and likely still being surrounded by a majority of executive members on the Board, will be challenging. 

      Hopefully the new cooks in the kitchen will have the challenge to make existing cooks realise that the taste of the consumer has changed and therefore the meal needs to be cooked differently.
       
      FCA Asset Management Market Study.pdf
    • Luuk Jacobs
      By Luuk Jacobs
      2018 is nearing its end. It has in many ways again been an exhausting year for the Investment Management industry. It started with the delivery of MiFID II, followed by other regulatory requirements like Gender Pay Gap Reporting and GDPR as well as preparing for the next round of regulation that will hit in 2019.
       
      I however think that 2019 is going to be the year of the B word.
       
      Likely this will be most associated with BREXIT – and the lack of plan B. I don’t want this blog to become another discussion of it as it is all in the hands of UK parliament as to where this all will go. If as a company you have not done your risk assessment in respect of this, and mitigated the risk already with changes to your business set up (how small or large this might be), time is, or has, run out by now and you can only hope for a low impact outcome.
       
      There are however other B words that I believe will put their mark on 2019.
       
      BLOCKCHAIN (or should we start calling it Distributed Ledger Technology). Much has been spoken about it but relatively little has been used in the investment management industry so far. The term at least has now become a collective understanding of the technology with targeted solutions becoming available although the blockchain technology offerings remain nascent and immature. Equally research from Forrester anticipates 90% of blockchain pilots won’t become complete products or services. Despite all these challenges blockchain will remain on the agenda of many Boards and Executives, as you can’t afford not to understand what it will change to and in your industry in general and the benefits it could bring to your own company.
       
      This brings us on to BITCOIN, one of the best-known uses of blockchain. 2018 was literally a year of highs and lows for Crypto Currencies in general. If you believe specialists in the field, 2019 will see the entry of Institutional money entering crypto currency. The Nasdaq will launch cryptocurrencies in 2019 and various other trading platforms are preparing their launch (Cyprus, Gibraltar).
      It is said that Bitcoin, as indicator for the crypto market, “is and remains in its long-term bull market. Bitcoin trades in its “transition band” whereas going forward, as Bitcoin is maturing as an investment, it will not exceed its bullish band” (investingHaven, October 2018).
       
      Bringing us to BOX and more specific sandbox; the technology and software testing environment that enables the isolated execution of software or programs for independent evaluation, monitoring or testing. This is becoming standard practice in business, and even the FCA, to test ideas to resolve the challenges that are being faced without directly making choices. It is bringing us all back to the days when we were at kindergarten playing in the sandbox, being creative, free spirited and thinking, leading to creating better together. 2019 will see sandbox being applied more broadly beyond technology.
       
      The last B word will be the BANK OF ENGLAND and its regulatory arm the PRA and FCA. Various regulation will need to be implemented in 2019, most notably and far reaching the Senior Manager Certification Regime (“SMCR”) and the Asset Management Market Study (“AMMS”). Both will not just be a challenge for the investment management industry to comply with but equally will change culture and governance on an unprecedented scale. 

       
    • Andy Milner
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      According to this year's UBS Global Real Estate Bubble Index, the risk of a bubble in the London housing market has declined for the 2nd year running, due to a cocktail of factors such as inflation, unaffordability and political uncertainty.
       
      Although this is some good news, I fear that it doesn't necessarily correlate with a decreased likely hood of a market crash, which would be the more interesting, although admittedly a lot harder, aspect to measure.
       
      UBS Global Real Estate Bubble Index 2018
      WWW.UBS.COM UBS Global Real Estate Bubble Index 2018 - https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/life-goals.html  
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