Deals & People December 3, 2008

FolioDynamix Joins DTCCs Managed Accounts Service

The Depository Trust&Clearing Corporation (DTCC) said FolioDynamix, a provider of technology platforms and services to the managed accounts industry, has joined DTCC’s Managed Accounts Service.
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FolioDynamix offers technology and investment service solutions to sponsors, registered investment advisers, asset management firms, and banks. Citing Cerulli Associates, a press release said FolioDynamix has a 6% market share of the managed account consultant programs in the U.S.; managed account assets under management were $16 billion at the end of the third quarter 2008.

“By connecting to the Managed Accounts Service, we’ll be able to offer our client base a straight-through connection to a platform that is a breakthrough solution for this industry,’ said Aaron Schumm, senior vice president in charge of Product for FolioDynamix, in the press release. “This kind of one-to-many communications network can have a significant effect on the industry, because for the first time members will be able to grow their businesses without the counterproductive expense of supporting multiple technology platforms and proprietary systems. The net effect allows sponsors and investment managers to gain operational efficiencies, while helping to minimize investment time delays for the end client.’

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The Managed Accounts Service is supported by DTCC’s post-trade infrastructure. Citi’s Smith Barney and Global Transaction Services are in full production with the Managed Accounts Service, and an additional 15 firms are currently programming or have announced their commitment to use the service, according to DTCC. These include JPMorgan, UBS Financial Services Inc, Dreyfus Investments, SunGard Transaction Network, and Peridrome Corporation.

The Markets December 3, 2008

Fund Fees Expected to Drop

The bear market will lead to a proportional decrease in regular fund fees and severe cuts in performance-based fees, according to Boston Consulting Group (BCG).
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In a recent report, the consulting group said four factors will lead to lower, or at least more volatile, fees: the bear market; margin pressure because of increased investor skepticism; a rising share of performance-based fees; and an increasing share of low-margin products.

The report also says the value of professionally managed assets rose globally in 2007 by 13.9%, to $58.9 trillion. Growth was particularly evident in the Asia-Pacific region. China, for the first time, broke into the ranks of the top 10 global markets with roughly $900 billion in AUM at the end of 2007. However, BCG said in a press release China might not maintain that status in 2008, given the precipitous fall of its equity market.

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BCG also noted some growth in alternative products. Exchange-traded funds (ETFs) are growing about three times as fast as other passive products, the firm said. Innovative or alternative products (including real estate, private equity, hedge funds, and other categories) accounted for about 16% of professionally managed assets.

But the share of global AUM allocated to passive fixed-income and equity funds (about 8%) is still six times as much as the amount allocated to ETFs. Overall, the global share of core asset-management products—actively managed equity and fixed income, plus money market vehicles—was 74% in 2007.

Looking Ahead for Asset Managers

Despite market turmoil, there will still be investment demand—such as in the retirement market—going forward.

The past year has been tremendously difficult amid hypersensitive markets and extraordinary events on Wall Street and in other financial centers in—and 2009 promises to be at least as challenging, BCG said. However, the firm says the fundamentals of the asset-management business remain positive, and asset managers need to focus not only on weathering the crisis but also on positioning themselves for the next growth phase.

According to BCG, key factors for success in rebounding from the subprime crisis will be better addressing client needs through improved distribution practices and enhanced risk management, as well as containing costs. It will also be critical for asset managers to explore new growth opportunities, particularly in Asia-Pacific and Brazil.

“It is safe to say that opportunities for asset managers still abound,” said Philippe Morel, a Paris-based senior partner and a coauthor of the report, in the release. “For example, many investors, having moved into cash vehicles as a safe haven, will be looking to put those funds back into actively managed investment products when confidence in the market fully returns, however long that may take. Aging populations will still need their retirement funds looked after. Potential profit pools in many regions, especially Asia-Pacific, are growing.”

The report, “Winning Strategies in Uncertain Times: Global Asset Management 2008,” can be requested at www.bcg.com.

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