ASSET MANAGEMENT MOVES INTO THE SPOTLIGHT

FINANCING THE ECONOMY

The falling supply of traditional sources of financing and growing needs in areas like infrastructure and SME funding have created a gap in the economy that provides a solid investment opportunity for the asset management industry.

The disruption of new banking regulations already can be seen in reduced balance sheets, limitations on availability of credit and increased costs. The pace of European bank deleveraging accelerated in 2013 with banks cutting €2.2 trillion from their balance sheets, of which €1 trillion were outstanding loans, a 6.9% year-over-year (YoY) fall. 5 Further effects will become more apparent in the coming years as the directives are fully integrated. See Figure 1.

traditional financing sourcEs arE drying up

To a large extent, the economy is reliant on banks and the government for financing, but in our post-crisis world these sources are dissipating.

Figure 1 ANNUAL perCeNtAge ChANge IN Assets ANd LoANs of eUro AreA mfIs (moNetAry fINANCIAL INstItUtIoNs)

nEw rEgulations provokE bank dElEvEraging

Loan

Asset

YoY change

15.0%

One of the most significant legacies of the 2008 financial crisis is the multitude of regulations that have been put in place to protect investors by reducing systemic risks and collateral damage from banks that are “too big to fail”. Many of the new requirements for banks obligate them to maintain higher capital ratios and de-risk their balance sheets. Indeed, the crisis and subsequent legislation have led to major changes in banks’ attitudes toward risk and, conse- quently, their investment strategies. As they strive to adhere to stringent regulations, banks in Europe are abandoning traditional business lines for the safe harbour of compliance. This is creating a gap in the industry, which asset manage- ment is ideally suited to fill.

10.0%

5.0%

0.0%

-5.0%

-10.0%

2011

2007

2008 2009 2010

2012 2013

Source: PwC analysis based on ECB database

Sources:ECBdatabase

14

5 PwC analysis based on ECB database