Global Asset Management
Also by Michael Pinedo
SCHEDULING: Theory, Algorithms and Systems
Planning and Scheduling in Manufacturing and Services
Queueing Networks: Customers, Signals and Product Form Solutions (with X. Chao and M. Miyazawa)
Operational Control in Asset Management (edited)
Creating Value in Financial Services: Strategies, Operations, and Technologies (edited with E. Melnick, P. Nayyar and S. Seshadri)
Also by Ingo Walter
The Common Market: Economic Integration in Europe (with F.B. Jensen)
The European Common Market: Growth and Patterns of Trade and Production
Exercises in Macroeconomics (with W.E. Mitchell and J.H. Hand)
International Economics (with K. Areskoug)
International Economics of Pollution
Multinationals Under Fire: Lessons in the Management of Conflict (with T.N. Gladwin)
Secret Money
Global Competition in Financial Services: Market Structure, Protection and Trade Liberalization
Investment Banking in Europe: Restructuring for the 1990s (with Roy C. Smith)
Global Financial Services (with Roy C. Smith)
Universal Banking in the United States (with A. Saunders)
Street Smarts: Leadership, Professional Conduct and Shareholder Value in the Securities Industry (with Roy C. Smith)
Political Economy of Financial Integration in Europe: The Battle of the Systems (with J. Story)
Global Capital Markets and Banking (with R.C. Smith)
Investment Banking in the Euro-Zone (with R.C. Smith)
Mergers and Acquisitions in Banking and Finance – What Works, What Does Not, and Why?
Governing the Modern Corporation (with R.C. Smith)
Regulating Wall Street (with members of the faculty and co-edited with V. Acharya, T. Cooley and M. Richardson)
Global Banking (with R.C. Smith and G. DeLong)
International Economic Relations (edited with F.B. Jensen)
State and Local Finance (edited with W.E. Mitchell)
The United States and International Markets: Commercial Policy Options in an Age of Controls (edited with R.G. Hawkins)
Readings in Macroeconomics (edited with W.E. Mitchell and J H. Hand)
Studies in International Environmental Economics (edited)
Resource Conservation: Social and Economic Dimensions of Recycling (edited with D.W. Pearce)
Regional Dimensions of Environmental Policy (edited with H. Siebert and K. Zimmermann)
Risk and the Political Economy of Resource Development (edited with D.W. Pearce and H. Siebert)
Deregulating Wall Street -- Commercial Bank Penetration of the Corporate Securities Market (edited)
Handbook of International Business (edited)
Handbook of International Management (edited)
European Industrial Restructuring in the 1990s (edited with K. Cool and D. Neven)
Restructuring Japan's Financial Markets (edited)
Financial Systems Design: Universal Banking Considered (edited with A. Saunders)
Global Asset Management
Strategies, Risks, Processes, and Technologies
Edited by
Michael Pinedo
and
Ingo Walter
Remaining chapters © Respective authors 2013
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and Patents Act 1988.
First published 2013 by
PALGRAVE MACMILLAN
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Contents
Preface
Notes on Contributors
Part I Global Asset Management – Introduction and Overview
1.The Asset Management Industry Dynamics of Growth, Structure and Performance
Ingo Walter
2. What Do We Know about the Mutual Fund Industry?
Massimo Massa
Part II The Crisis of 2007–2008 and its Aftermath
3. Macroeconomic Perspectives on the Financial Crisis and Its Aftermath
Ole Risager
4. Some Lessons from CDO Markets on Mathematical Models
David Lando
5. The Credit Crisis of 2007 and Its Implications for Risk Management
John Hull
6. After the Storm: Four Innovations Changing Investment Management
Adam Schneider
7. Avoiding International Financial Crises: An Incomplete Reform Agenda
Jean Dermine
Part III Key Risk Factors in Asset Management
8. Managing Growth and Strategic Risk
Mathias Schmit and Lin-Sya Chao
9. Wall Street’s Management of Risk – Why It Failed
John H. Biggs
10. Reputational Risk
Ingo Walter
11. Risk Management for Pension Funds and Endowments
Aaron Brown
12. a Stitch in Time …
Kosrow Dehnad
Part IV Regulations and Governance
13. Corporate Governance and the Financial Crisis
Steen Thomsen
14. Governance and the Financial Crisis: More Convergence, Less Risk?
Renée Adams
15. Financial Regulation and Risk Governance
Caspar Rose
16. Game Change in Asset Management
Karel Lannoo and Mirzha de Manuel Aramendía
17. The Asset Manager’s Guide to Sustainable Regulatory Challenge
Anders Bidsted Andersen and Carsten Kunkel
Part V Operational Processes and Costs
18. The Interrelationships between Processes, Costs and Risks in Asset Management
Michael Pinedo
19. a Best Practices Framework for Operational Infrastructure and Controls in Asset Management
Ümit Alptuna, Manos Hatzakis and Reha Tütüncü
20. Managing Costs at Investment Management Firms
Adam Schneider
21. Strategic and Tactical Cost Management in the Asset Management Industry
Marcelo Cruz
22. Transaction Costs and Asset Management
Yakov Amihud and Haim Mendelson
Part VI Operational Platforms and IT Strategies
23. Operational Platform and Growth: a Strategic Challenge
Jacob Elsborg
24. Addressing the Data Management Challenge in Asset Management
Howie San
25. The Use of Advanced Technology in Global Asset Management
Anders Kirkeby
26. Fit-for-Future Enterprise Architecture: Supporting Strategic Business Challenges
Marc Schröter
Part VII Future Challenges and Growth
27. The Strategic Imperative of Creating and Capturing Value
by Paul Verdin
28. Check Or Checkmate? Game-Changing Strategies for the Asset Management Industry.
by Johannes Elsner, Martin Huber and Philipp Koch
29. Designing Products for Reluctant Investors: Applications of Behavioral Finance
by Alistair Byrne
30. Current and Future Challenges Faced by Investment Funds
by Martin Gruber
31. Current and Future Challenges Faced by Asset Managers
by Stephen Brown
32. Current and Future Challenges Faced by Pension Funds
by Massimo Massa
List of Figures and Tables
Preface
This volume collects the thoughts of experts – insiders and outsiders with no axes to grind or services to sell – on the complex and dynamic issues that confront the global asset management industry.
What value is being created in the diverse asset management sector and how is that likely to change? What separates the winners from the losers in the various sectors of the industry? How and why did the industry fail to protect its clients in the financial crisis and what are the consequences going forward? What are the key risk issues confronting firms in the industry, notably operational and reputational risks, and how do they relate to governance and regulation?
If durable competitive distinction in fund performance is difficult or impossible to attain, then the name of the game has to be efficiency and costs – and their critical dependence technologies, systems architecture and client interface. The pivotal role of best-in-class transactions and information platforms is one of the few certainties in an otherwise uncertain industry context.
We have divided the volume into a logical sequence of sections discussing, respectively, broad asset management industry dynamics, the industry impact of the financial crisis of 2007-09, and key risk and regulatory issues facing the industry – subsequently narrowing the focus on operational processes and cost structures as well as operational platforms and IT strategies.
The latter are of key importance. If competitive distinction cannot durably be achieved through persistent portfolio outperformance adjusted for risk, then the distinguishing between winners and losers in the industry depends heavily on costs and quality of service, as well as optimizing both internally and externally the value of information.
The more technical chapters contained in this part of the volume are well worth the time and effort it takes to peruse them carefully. The last Section of the book looks ahead to the future of the asset management industry and the strategic positioning and execution issues that will determine competitive success.
We intend this book to be the go-to reference on the asset management industry, with a substantial shelf life. It provides a serious resource for readers seeking greater depth and alternative opinions on specific industry developments, as well as access to breadth for specialists interests in the dynamics of the industry.
We are grateful to the authors of the chapters contained in this volume for the quality and timeliness of their work – as in any such collection of views, credit belongs to them. We are also thankful to SimCorp StrategyLab, SimCorp’s independent private research institution, that through its extensive research program has transformed our idea into reality and made this publication possible.
We are also Indebted to Mette Trier, who kept us on a tight leash in getting contributions in on time and in correct form, and handling the logistics of the project with her usual high level of efficiency and diplomacy. Responsibility for any remaining errors of omission or commission rest with the editors.
Notes on Contributors
RenéeB. Adams is Professor of Finance and Commonwealth Bank Chair in Finance at the University of New South Wales. She is also the director of the Finance Research Network (FIRN), an affiliate of LSE’s Financial Markets Group and a member of the European Corporate Governance Institute (ECGI).She holds anMS in Mathematics from Stanford Universityand a PhD in Economics from the University of Chicago.Professor Adams’s research focuses on corporate governance, corporate finance and the economics of organizations. She is an expert on corporate boards and the governance of financial institutions. Shehas published in top accounting, economics, finance and management journals including theJournal of Accounting and Economics,theJournal of Finance,theJournal of Financial Economics,Management Science, theReview of Economic Studies and Strategic Management Journal. Contact information: Banking & Finance, Australian School of Business, UNSW, Sydney, NSW 2052, Australia. Contact: .
Ümit Alptuna is a Managing Director at Goldman Sachs Asset Management and COO of Goldman Sachs Investment Partners. Prior to joining Goldman Sachs in 2001, he was a manager in Business Assurance Services at PriceWaterhouseCoopers LLP in New York where he was responsible for overseeing audit engagements as well as providing guidance on technical accounting matters. He is a graduate of the Stern School of Business at New York University, a licensed CPA and a CFA Charterholder. Contact:
Yakov Amihud is Ira Leon Rennert Professor of Entrepreneurial Finance at the Stern School of Business, New York University. His research focuses on the effects of the liquidity of stocks and bonds on their returns and values, and on the design and evaluation of securities markets trading systems. He is the co-author of a recently published book Market Liquidity: Asset Pricing, Risk and Crises, as well as a number of research articles. He has also advised the NYSE, AMEX, CBOE, CBOT and other securities markets. His research also includes the evaluation of corporate financial policies, dividend policy, mergers and acquisitions, initial public offerings, objectives of corporate managers and their risk taking, and law and finance. He has published more than eighty research articles in professional journals and in books, and edited and co-edited five books on topics such as LBOs, bank M&As, international finance and securities market design. Contact:
Anders Bidsted Andersen is Vice President and Head of Global Professional Services at SimCorp. His responsibilities include global regulatory service product development, value-creating packaged services and service-enabled solution innovations. With his global teams and regional service managers, he drives development, launch and execution of global regulatory, business and operational services and solutions for clients in all markets serviced by SimCorp. With over 20 years’ experience from executing and managing roles in Big-4 management consultancies and global high-performance organizations, his specialties are quantitative finance, regulatory change and acceleration of strategic and operational breakthroughs. Anders Bidsted Andersen holds an MBA from the University of Chicago Booth School of Business and a graduate degree in Computer Science. Contact:
Mirzha de Manuel Aramendia is a Research Fellow at the European Capital Markets Institute (ECMI) and the Centre for European Policy Studies (CEPS) in Brussels since September 2010. In this capacity, he set up a Task Force on "Long-term Investing and Retirement Savings" in December 2012, which Final Report will be released in the Fall of 2013. The research of Mirzha at CEPS focuses on public policy and market aspects in relation to investment management, retirement savings, broader asset management - including life insurance - and investor protection. It extends to connected aspects in the fields of financial stability, institutional settings and supervisory practices, economic growth and competitiveness, corporate governance, social inclusiveness, competition policy, market structure and industrial organisation. Mirzha is MA in European Economic and Legal Analysis from the College of Europe in Belgium (2010) and a qualified lawyer from the Bar of Madrid. He holds both a master in Business Economics and master in Spanish and Common Law (2009) from the University of Valladolid (Spain). Contact:
John H. Biggs is an Executive-in-Residence and Adjunct Professor of Finance at the Stern School of New York University. He served as President and then Chairman and CEO of TIAA-CREF, a multi-line pension and insurance company for 14 years. He served as a Director of many companies, in particular, JP Morgan Chase, a multi-line financial institution, where he was a member of the audit committee. He is currently Chairman of the Audit Committee of Boeing, a multi-line industrial company. He is a Fellow of the Society of Actuaries and earned a PhD in Economics. He has participated in and written on corporate governance, actuarial and general management issues. He is a director and former Chairman of the National Bureau of Economic Research. He served as the Chief Financial Officer of a life insurance company before becoming Vice-Chancellor of Washington University in St. Louis in 1977. In these two institutions, he implemented the “accountability center” management principles as described in this article. He has served as a trustee of the foundations overseeing FASB and the International Accounting Standards Board. He is currently a trustee of Washington University in St. Louis and Chairman of its Investment Management Company. He is a member of the American Academy of Arts and Sciences, and the Council on Foreign Relations. Contact: