Last week the FCA announced it had created a ‘hub’ to support the launch of new asset management firms, after acknowledging prospective entrants to the industry may need more help from the regulator.
The plans received a warm welcome from the New City Initiative, a think tank for boutiques that had championed the idea. By contrast, those who buy funds were less effusive.
“I don’t think it’s going to have much impact,” said Andrew Gilbert, an investment manager for Parmenion. “If you are launching a fund without seed capital, which is limited for boutiques, you need a foundation investor.
“Historically you would use groups such as smaller advisers, then larger advisers and discretionary fund managers. But there are fewer and fewer advisers at the lower end. Unless that issue is addressed, I’m not sure how much of a difference this [hub] makes.”
Gavin Haynes, of discretionary firm Whitechurch Securities, said there was already a “very wide choice” of products to select from, but echoed Mr Gilbert’s points about other obstacles to start-ups.
“It’s not really the regulation that’s a restriction for funds getting off the ground,” he explained. “It’s about being able to gain traction and gain funds under management to make them scaleable.”
Megan Butler, the watchdog’s executive director of supervision for investment, wholesale and specialist, said the FCA would seek to give firms better guidance on regulations and processes, as well as making information easier to access via a dedicated online portal for investment managers.
The first phase of the hub will go live this month, with the regulator offering firms pre-application meetings and dedicated case officers.
While many asset allocators favour boutiques, such support often depends on the track record of the fund managers involved, as well as the ability to offer a specialist approach.
“It’s [about accessing] a niche investment area that doesn’t lend itself to being a large firm,” said Mr Haynes.
The announcement follows the publication of the FCA’s asset management market study final report, which put forward a variety of measures aimed at boosting “weak” competition in fund management. The launch of the hub could further boost competitiveness in the industry, said Ms Butler.
“We know it is not enough to ask investment managers, on your own, to make improvements in the name of competition,” she said, speaking at the FT’s Investment Management Summit. “We need to play our own part. A traditional critique of regulation is that a lot of red tape tends to protect incumbents from competition by putting off new entrants. On this point, we know prospective entrants to the asset management industry would welcome more support from the FCA.”
The FCA plans to expand its activities with quarterly surgeries and online booking for pre-application meetings, as well as the publication of more detail on the regulator’s entry criteria.
Ms Butler stressed this would not mean a watering down of standards.
“The authorisation hub is not designed to lower entry standards to the market,” she said.
The viability of new fund firms has become a source of concern for providers. Last year, Investment Adviser reported the number of boutique asset managers had nearly halved in just two years, in part because of legal and regulatory costs.
IN NUMBERS
204
Number of newfund firms approved bythe FCA in 2016
21
Number of boutique firms counted by the Investment Association in 2016
