ASSET MANAGEMENT MOVES INTO THE SPOTLIGHT

If asset managers hope to offer products that cater to investors seeking non-banking solutions, they will need to make use of adequate vehicles that are not stymied by overbearing regulations, which requires correct public policy. For example, the daily liquidity requirements of UCITS funds are not appropriate when applied to long-term investments. As already detailed in one of our previous reports, 28 vehicles designed for the long-term should not only be permitted, but should be required to offer liquidity designed with the long- term investor in mind. This could be accomplished through various measures such as managed redemption possibilities over certain time periods. During the past decades, the asset management indus- try has successfully won a notable portion of institutional clients. However, going forward asset managers will need to outperform their competitors in four key areas if they want to maintain and increase their market share with institutional investors. Specifically, asset managers must strive to deliver consistent risk-based performance and charge appropriate fees while demonstrating the utmost transparency and governance as well as a commitment to meet the needs of institutional investors through operational strength. See Figure 19. addrEssing thE nEEds of institutional invEstors

According to an OECD report, 26 the new Basel III capital and liquidity requirements could discourage long-term banking and financial initiatives. The International Accounting Standards Board’s (IASB) mark-to-market philosophy, which attributes instant market pricing to assets whose value takes a longer time to materialise, is particularly damaging for long-term investments. Additionally, the European Solvency II Directive could reduce the appetite of insurance companies and pension funds for infrastructure assets by preventing them fromproperly matching long-term liabilities on their balance sheets with long-term assets. Also, a long-term orientation by institutional investors is frequently impeded by the demands of clients who require liquidity. Perhaps an increased focus on investor education could mitigate this scenario. In order to prompt long-term investors to bridge the financing gap, asset managers can help to set up investment platforms, work with policy makers to establish regulatory mechanisms such as tax incentives for long-term investment and deliver investment opportunities that include risk transfer mechanisms. 27 To further extend their influence and represent the industry, asset managers might also consider taking part in dialogues with investor associations to discuss and develop new frameworks. For example, various investor associations have been created to promote and enhance long-term investing: The Club of Long-Term Investors (LTIC), composed of 15major supra national financial institutions and governmental banks from all over the world, was established in 2009 and the European Long-Term Investors association (ELTI), was launched last July by 16 supranational financial institutions and government banks in Europe. The aimof both is to bring together worldwide institutions that focus on long-term investors in order to foster the right conditions for promoting growth in this area.

26 OECD,“Fostering Long-term Investment and Economic Growth”, 2011 27 CACEIS/PwC, "Ideal Fund - Reengineering the fund value proposition", 2009 28 Ibid

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