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I N V E ST M E NT M A N AG E M E NT

Keeping ahead of the curve:


Investment Management in the new regulatory
landscape
May 2010

F I N A N C I A L S E RV I C E S
Foreword
Ensuring compliance with existing regulations, and preparing for new
regulatory developments is a normal part of doing business for financial
services organizations. However, the breadth and volume of regulatory initiatives
around the world has surged in response to the global financial crisis, putting
increasing strain on businesses already under pressure. In a large part, the
upcoming regulatory reforms are focused on banking entities and their spheres
of operation. Yet, sizable changes are looming which will have a dramatic impact
on the investment management industry as well.
Concern over the extent to which the investment management industry
contributed to — or has the potential to contribute to — systemic risk, and
enhancing investor protection are the rallying cries for the current sweep of
regulatory reforms. For organizations affected, the impact will be felt across many
areas of operations: from how they manufacture, manage and distribute products
to the costs they incur and the employees they are able to attract and retain.
Given the prominence of the current regulatory agenda across the globe, KPMG
wanted to assess how top executives in the investment management sector
viewed the impact on their businesses. Will new regulation affect their strategic
objectives, the markets in which they operate and their financial targets for the
future? Will it impact investment returns? Should they move their location? This
research reveals a wide range of views and concludes that the investment
management industry as a whole is responding to the challenge well and fully
embracing change.

Wm. David Seymour Tom Brown


Global Head of Investment Head of Investment
Management Management EMA
KPMG in the US KPMG in the UK

Richard Pettifer James J. Suglia


Head of Risk and Compliance Global Advisory Services
Investment Management Investment Management Sector Leader
KPMG in the UK KPMG in the US

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
About the research
In Spring 2010, KPMG International and KPMG member firms
interviewed senior executives from 17 investment management
organizations, which combined had more than US$6.5 trillion in
assets under management and included some of the largest
firms in the world. In total, 12 chief executives and 5 other senior
executives at investment management companies from across the
North America, Europe and Asia-Pacific participated in the research.
The interviews focused on what effect regulatory developments
were having in driving change in the investment management
industry over the next 3–5 years in a host of areas: the effect on
firms’ strategic objectives and financial goals, their approach to
institutional versus retail client segments, its impact on investment
returns and product innovation, whether remuneration constraints
will make it harder to attract talent and how greater personal
accountability will affect directorships.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
Contents
Executive summary 2

I. Impact of new regulation on strategy 4

II. Institutional or retail: Market polarization? 8

III. The onshore–offshore debate 12

IV. Product transparency, performance and


innovation 14

V. Costs and fees

VI. The people agenda


18

22
4 8
Responding to some of the challenges ahead 24

Acknowledgements 26

Contacts 28

10
15

19
27
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
2       K E E P I N G A H E AD OF THE CURVE

Executive summary
Following the global financial crisis, opportunities emerged despite • As investment managers will have
politicians and regulators around the two clearly identified strategic to absorb the regulatory compliance
world were quick to propose a host of challenges: the potential increase costs, this will drive them to look
reforms, and perhaps some proposals of capital requirements and for efficiencies to help offset costs,
were a bit hasty. Panic levels may have restrictive rules in the alternative resulting in a more streamlined
subsided as markets recovered but investments market. operating model.
much of the proposed regulation is
• Changes in tax systems in different
clearly not going away. Senior executives Business model geographies and increased
from investment management
• Although a number of regulatory accountability for directors are all
businesses are showing a strong
initiatives could have the potential items that put pressure on the
interest in the forthcoming changes and
to drive the retail and institutional people agenda and could result in
are engaging in positive debate hoping
markets apart, CEOs do not the migration of intellectual capital
to shape the final outcome.
believe that they will be forced to to lifestyle- and tax-favorable
It is important to understand the overall choose between these markets. locations. Tracking their migration
impact that the reform agenda could Those large firms in particular who and finding long distance or
have on investment managers’ strategy, decide to do business in both will ‘offshore’ working models could be
their business model and their still be able to do so. Smaller a solution to retain the best talent.
operations. To do this, we held a firms, however, may find that the
number of in-depth interviews with institutional market may be more
senior executives of investment suitable to them. In retail, size
management firms located around matters.
the world; with total assets under
• Although regulation will increase
management of nearly US$6.5 trillion.
costs — probably significantly —
Overwhelmingly, the attitude of the majority of executives think that
the CEOs was positive and upbeat. the global reform agenda will have
They will respond to new regulations no significant effect on fees.
positively because in the long run,
• Product innovation will remain a
doing so will strengthen the overall
feature of the industry. Higher
market and environment, they are
investor protection and transparency
determined to emerge with stronger
required by regulation may slow
businesses. Overall, the investment
down the turnover cycle and that
management industry is responding
in itself is a good outcome for
well to the changing regulatory
investors — it will ensure that the
landscape and the challenges that
market offers ‘flagship products that
it brings.
generate consistent alpha.’

Strategy Operating model


• On balance, executives felt that
• M
ost of the CEOs interviewed
their business strategy will not be
thought that funds will migrate
adversely impacted by proposed
from offshore to onshore centers.
new regulation and that it could
Nevertheless, not only might this
even generate significant
trend be limited to Europe, but
opportunities, including acquisition
some offshore centers, for example
of other firms, streamlining of the
in South East Asia, that are actually
current operating model and
gaining traction will also ensure that
further strengthening of newly
the offshore model remains a key
rebuilt investor trust. These
feature of the industry.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CUR V E       3

Overwhelmingly, the attitude of the CEOs


was positive and upbeat. They will respond
to new regulations positively because in
the long run, doing so will strengthen the
overall market and environment, they are
determined to emerge with stronger
businesses.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
4       K E E P I N G A H E AD OF THE CURVE

I
Impact of new
regulation on strategy

T
he global regulatory reform that As a result, firms are likely to be more Asia, markets weathered the crisis
has been affecting the financial conservative, the executive continues: better than in other regions partly due,
services industry since the “People will assume it is going to be some argued, to the stricter regulatory
financial crisis continues to develop. harder to make money, either because frameworks they had already. As a
However, the jury is still out with they are holding more capital or because result, since less went wrong, there is
regard to the extent to which the total clients are more risk averse, or because less need for corrective regulation to
weight and scale of the reform will you have to spend more money on make things right.
impact investment management firms’ systems or processes, or whatever it is
“Australia has been pretty highly
future business strategy. going to be. So due to a combination of
regulated for a number of years now,
reasons I think [organizations] will be
“At the moment I would say so I doubt there will be another layer
more cautious in the goals they set.”
regulation is unclear,” notes one of regulation that will have an impact
executive. “It is not coordinated. According to another executive, the on the business,” says one executive.
There is a lot of political regulation growing regulatory burden is an “It will change it at the edges, and will
going on, without full consultation. So ongoing feature: “I always assume have some minor impact on procedures
I think it is difficult to amend business more regulation. But there is very and operations and costs, but I don’t
models at this stage. But I feel it will little that would change anything that sense there is any strategic change in
be a far more intrusive environment, fundamental from my perspective…” the direction of our business in the
and the need to adjust business next three to five years as a result of
Of course some sectors and some
practices, products, disclosure and regulation.”
geographies will be more impacted
transparency is where it is all going.”
than others. In Australia and much of

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CUR V E       5

New Opportunities
On the positive side, it was felt by • Operating model: In Europe,
many executives that some of the the regulatory change most Although this has
reforms coming through could unequivocally welcomed by the
generate substantial opportunities: executives we interviewed was
been said often
UCITS IV (Undertakings for before, there is still
• Mergers and acquisitions: “Some Collective Investment in Trans-
medium-sized insurance companies ferable Securities). It comprises a need for the
are being confronted with new an ‘Efficiency Package’ of major
investment
constraints on capital, new asset amendments that are expected to
allocation restrictions, maybe bring significant efficiencies to management
European fund organizations and
moving into international
accounting standards for the first their clients. Aside from UCITS IV,
industry — and
time, and so they are coming to us and more broadly speaking, changes financial services
and asking for advice on how we to the operating model in response
do it,” says an executive with a to new rules could be taken as an as a whole — to
leading European asset manager. opportunity to improve processes.
take clear and
“So, if anything, this type of
regulation – which is a wave for • Rebuilding trust: Although this positive action to
some of the banks and insurance has been said often before, there
companies – is resulting in a is still a need for the investment
rebuild client trust.
positive effect for our business.” management industry — and
financial services as a whole — to
If bank- or insurance-owned firms
take clear and positive action to
are forced by regulation, capital
rebuild client trust. In part, that
needs or risk management to divest
requires more good-quality
their investment management, and
regulation. “Previously, the
private equity entities, this will
emphasis too often was on making
provide opportunities for some
products that were good for the
investment management
bank and asset management
organizations to acquire well-
company, rather than the client”,
established alternative investment
says a Europe-based CEO. “The
entities, notes the chief executive of
result was more than 90% of the
one European-based organization.
fixed income and equity funds not
On the other hand, the growing really performing and delivering
compliance burden in the US and any kind of alpha. Therefore,
Europe, and its associated costs, regulations that introduce more
may force some asset managers to transparency, such as the review
exit some or all of their business of the Markets in Financial
activities. The result will be further Instruments Directive (MiFID), are
consolidation in the investment needed”, he says, “because unless
management arena, providing the investor recovers trust in the
opportunities for the strongest industry we are all dead.”
market participants.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
6       K E E P I N G A H E AD OF THE CURVE

Challenges
Despite the uncertainty about much of • The alternative investments transparency on costs to the investor
the detail, the executives pointed to two market: A particularly controversial and business costs (these are all
key areas where increased regulation initiative is the European Union’s explored in later sections of this report).
could negatively impact the industry at a Alternative Investment Fund
In conclusion, regulatory-driven
strategic level, namely, capital and the Managers (AIFM) directive. The
changes will, of course, generate
alternative investments market: AIFM, as it stood at the time this
immediate compliance activity, which
research was conducted, “could
will require effort and cost money, but
• Capital: At their Pittsburgh summit, have a negative impact on private
in the longer term, they should also
the G20 leaders committed equity and hedge funds,” says one
accelerate a clear trend to improve
“to developing by end-2010 European executive. Given the
the way investment management
internationally agreed rules to restrictions it could impose on
businesses operate, meaning the
improve both the quantity and non-EU funds or managers
investment management industry will
quality of bank capital and to marketing their funds within the
emerge stronger, more efficient and
discourage excessive leverage.” EU, for some fund managers that
more client centric than ever before.
Similarly, the Basel 3 proposals set do not have a presence there
Overall, the global reform agenda
out more onerous capital and already, “it may well be important
will accelerate the existing market
liquidity requirements. For its part, to get into the EU in order to have
consolidation trend and, at the end of
the European Commission will put competitive products.”
this process the remaining entities
forward changes in the second Meanwhile, the Restoring American will be stronger players in the market.
half of 2010 to the Capital Financial Stability Act includes Groups that embrace change and
Requirements Directive (CRD), provisions requiring advisors to respond positively to seize the
known as ‘CRD IV,’ in an effort to hedge funds and other private opportunities created will emerge the
ensure the financial soundness of funds that manage in excess of stronger.
banks and investment firms1. US$100 million to register with the
The message for banks and SEC. Funds would subsequently
investment banks is clear: they will have to provide information about
need a lot more capital and liquidity. their trades and portfolios to the
Moreover, there is potential that regulator for the purpose of
increased capital requirements assessing systemic risk.
could be introduced for the
Executives also discussed three further
investment management industry.
themes that are deemed to challenge
As one CEO observes: “It is
firms at a business and operational
counterintuitive to think people are
level: product transparency,
going to ignore asset management.”

1
Financial crisis response: Commission asks stakeholders for views on further possible changes to Capital Requirements Directive (‘CRD IV’),
26 February 2010, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/197&format=HTML&aged=0&language=EN&guiLanguage=en

Keep It is clear that there is a lot of uncertainty regarding the impact of regulatory reform on
in strategic agendas. This will continue to be the case as proposals are debated and shaped.
mind Only when final regulations are issued will investment managers be able to undertake impact
assessments and plan what to do. On big strategic decisions like polarization between retail
and institutional, location strategies and asset strategies regulation is still forming. Many
groups are keeping their options open to give themselves the ability to move quickly when
they need to do so.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CUR V E       7

Will regulatory change negatively affect


investment management companies’ ability
to deliver on strategic objectives and
financial goals?

53%

47%

Yes No

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
8       K E E P I N G A H E AD OF THE CURVE

II
Institutional or retail:
Market polarization?
T
hus far, the politicians’ and the
regulators’ focus is on providing
improved protection for the
retail side of the industry, meaning
organizations that service the retail
sector face a high burden of regulation.
As a result, some executives suggest
there could be a greater polarization in
the industry between managers
specializing either in the retail or in
the institutional sectors, with only the
biggest players having the capacity
and/or desire to span both.

Traditionally, institutional investors were


seen as sophisticated clients that
understood the risks they faced, and
did not need a high level of investor
protection. But although the financial
crisis has provoked a reassessment of
that view, the main catalyst for change in
the institutional market will continue to
be the institutional investors themselves,
according to the Europe-based CEO of
one investment manager, as they step
up due diligence requirements and press
for more transparency around such
issues as remuneration and trading
practices.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CUR V E       9

Divergence • Different investor needs: The


level of sophistication, knowledge
Interviewees highlighted a number of and risk appetite of the retail
factors creating a more pronounced investor versus the institutional
divergence between the institutional investor dictates their different
and retail investment management product needs, as do their different
markets. Although these are not new, investment needs.
we are seeing increased divergence
caused by: • Compliance burden/cost: Much of
the new regulation targets the retail
sector and therefore that is where
the greatest burden will fall. As
one Europe-based executive notes,
The main catalyst for change in the “Because of the cost structure,
the boutiques will certainly go
institutional market will continue to be the down the institutional route,” where
institutional investors themselves, according compliance costs are less onerous.

to the Europe-based CEO of one investment • Distribution: How managers


distribute products to retail and
manager, as they step up due diligence institutional markets is
requirements and press for more fundamentally different, and will
become more distinct due to
transparency around such issues as commercial developments and

remuneration and trading practices. regulatory action. Even in retail,


distribution divisions exist, with a
firm having to decide “whether it
goes through a wholesale channel,
and is intermediated, or whether
you are talking to Aunt Agatha
directly,” says one executive. “If so,
there are further regulations for
dealing with personal customers.”

• Scale: The need to access


broad-based distribution and
the regulatory pressures on
prices, investor protection and
operational governance make it
increasingly important for firms in
the retail arena to achieve scale
in order to operate profitably. As a
result, says one European CEO, it
is easier for retail-oriented
managers to take on institutional
mandates than for institutional-
only firms to begin servicing
retail clients.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
1 0       K E E P I N G A H EAD OF THE CURVE

Will there be less common ground between retail


and institutional investors and the regulations that
govern them, so that companies will be forced to
choose which market to focus on?

73% 27%

Yes No

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       1 1

Long-term trend
While a regulatory wedge may be In Australia, for example, in the last 10
being driven between the retail and years, the wholesale and retail ends of
institutional sectors, our study suggests the market have been converging into
that it seems unlikely to be a long- the middle ground, says one executive,
term trend. The combination of the noting that many fund managers are
economic crisis, high-profile fraud providing versions of their wholesale
cases, the perception of certain types market capabilities at a mezzanine
of asset managers contributing to level — for example, a hybrid retail
systemic risk, and the regulatory offering with AU$50,000 minimum
changes arising out of these issues is contributions — and at a retail level.
driving investment managers’ attitudes “In a sense, they are loosening up the
and behavior today. But as the market bounds about what is wholesale, what
situation improves, regulatory is mezzanine/large retail, and what is
oversight may not have the same traditional retail. So I don’t get the
intensity of focus as at present, and sense of polarization. That is true of the
the emphasis will shift back to results- investment management industry and it
driven performance and how that can is also true of the retirement savings
best be achieved, note a number of industry.”
the executives we interviewed.
The general consensus, therefore, is
Furthermore, although retail and that some managers, especially
institutional sectors bring different smaller players, will focus on servicing
regulatory and distribution requirements, niche market areas in the institutional
several executives argue those arena. Overall it is unlikely that in the
constituencies’ views and needs are long run there will be distinct
getting closer, helping managers to sell polarization between the retail and
products in both channels. institutional sectors of the investment
management industry.

Keep Executives interviewed realize what side the regulators want their bread buttered on – both
in sides. Institutional investment while driven by banks and insurance companies is founded on the
mind rock of the greatest personal saving mechanism we know; pensions. If they fail, the man on the
street suffers. It would be stunning if the regulatory environment did not recognize this in the
fullness of time.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
1 2       K E E P I N G A H EAD OF THE CURVE

III
The onshore–
offshore debate

Will funds migrate from offshore centers


to onshore?

61%

31%

8%

Yes No

Funds already established will remain where they are,


but new funds will be opened on-shore much more than
off-shore.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E        1 3

G
overnment taxation policies especially in this country, because the
and regulatory bodies are Germans traditionally have been very
pursuing agendas that appear tax sensitive in how they invest.”
designed to encourage investment
Although regulation may be
vehicles onshore. EU’s AIFMD is a key
encouraging onshore investment there
component of this. More hedge funds
are arguments in favor of funds moving
than not will opt to operate under
in the opposite direction. “If you had a
the EU regime, says a European
stable environment in terms of a clear
executive, because there is no
roadmap for regulation and taxation
downside and the products become
then there is a huge incentive for the
easier to sell to certain retail investors
offshore markets to move onshore,”
as well as institutional investors.
says the CEO of a large European
Interviewees argue that, in addition to organization. “However, the issue is
regulation, there is a market shift to those big onshore markets are the
onshore, as even institutional clients ones behaving in such an aggressive
demand greater clarity on what they manner that they are losing that
buy, and more robust oversight of the opportunity.” Some executives argue
assets being managed. “So the good that offshore will also remain attractive
quality investment managers who to the larger, more sophisticated
have been running hedge fund-style institutional investors, including large
strategies will just do it in an onshore pension funds and sovereign wealth
environment,” says one European funds, which genuinely have particular
executive. investment and tax needs.

Traditionally, certain off shore There will always be a place for


locations encourage investment by offshore centers and the fierce
promoting tax efficient structures, competition between them is perhaps
however the onshore locations are as much a threat as the move
responding. onshore. The movement to South East
Asia remains a prominent feature on
There are a number of tax initiatives
the global horizon and is likely to
that have proven beneficial to the
continue to strengthen in the
larger economies. The OECD attention
foreseeable future.
on offshore centers, in an effort to
curb tax avoidance, is one prominent In short, although there is evidence of
example. According to one executive a mild trend toward onshore locations
based there, Germany is witnessing a in Europe, many legacy issues
repatriation of funds from Switzerland remain. While the eventual shape of
as a result, to the benefit of its the AIFMD in particular remained
industry: “People are beginning to unclear at the time this research was
realize it doesn’t make a lot of sense conducted, many organizations are
to have things offshore, even if they uncertain about what steps to take. It
are ‘legitimate,’ because it just attracts is therefore too soon to implement a
unwanted fiscal authority interest. So response, but the time is right to start
this tax transparency trend we are analyzing options that could help solve
seeing in Europe could be a good the location question and generate
thing for above-board, fully regulated competitive advantages.
asset management companies,

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
1 4       K E E P I N G A H EAD OF THE CURVE

IV
Product transparency,
performance and
innovation
W
e have already noted the “So the way the regulations define
increased investor demands what products are available and the Short selling restrictions*
for more clearly defined, way you can hedge out risk will create In 2008, many jurisdictions —
transparent and easy-to-understand significant long term costs to end including US, UK, Canada,
products, and the array of regulatory consumers.” France, Germany, Japan, South
initiatives designed to better protect Korea and Australia — brought
The consequences of regulation are
investors. The question is, will the in restrictions on short selling,
not always straightforward. As one
benefits to investors outweigh a
executive observes, if firms’ ability to particularly for at-risk domestic
reduction in investment returns
use leverage is reduced, then the financial stocks. Most of the
and reduced product innovation?
returns provided by some structured bans on uncovered short selling
products will be lower. But on the were short-lived, with the focus
Investment flipside, reducing the amount of now shifting to short selling
leverage may help to counter big up
returns and downswings in the financial
disclosure regimes, in an effort
to boost transparency and curb
Market performance, alpha and costs market, with the destabilizing effect
the potential for market abuse.
are all key in driving investment that has on the wider economy, and
returns and all are being impacted in thus allow the underlying cash market However, there is regulatory
the current regulatory reform to function better. determination to clamp down on
environment. naked short selling. The
In short, tougher regulation may
The ability to generate alpha will be restrict tools and strategies managers European Commission is
affected by a range of regulatory can use and ultimately impact alpha. composing a legislative package
constraints, such as those proposed However, underlying market returns, to control naked short selling of
on short selling* and investing in or beta are unlikely to be altered or credit default swaps, and in
specific instruments/markets, the may even benefit. March, Germany’s Finance
imposition of leverage limits etc. Minister said naked short selling
would be outlawed there. The
There is also an opportunity cost
from restrictions on the use of SEC instituted its permanent but
certain instruments. For instance, watered down restriction on
soft commodities are not eligible naked short selling last July. In
investments under UCITS, although February, it subsequently voted
the asset class performed well to implement an uptick rule for
through both the up and down cycles, stocks that fall 10% in one day.
notes one Europe-based executive. Japan also has a permanent
uptick rule requirement,
prohibiting short selling at prices
below the latest market price.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       1 5

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
1 6       K E E P I N G A H EAD OF THE CURVE

Risk appetite and yield regulators’ desire to exercise more


management control over the industry will lead to
more homogenization, less choice
The market downturn of 2008/09 for investors, and hence a reduced
damaged returns and therefore ability for both institutional and
affected the ability of both institutional retail communities to meet their
and retail investors to meet their idiosyncratic needs. But is product
investment goals. As the outlook innovation really under threat?
improves, and investors’ memories
of the crisis fade, we could see Supply and demand
increased demand for higher-risk,
Rather than regulation, a primary
higher-return products, as investors
deterrent to product innovation at
need to repair their portfolios.
present is client demand, where the
It may encourage investors to invest emphasis — at least in the short
through vehicles with fewer investment term — is on transparent, easy-to-
restrictions. “My concern,” says one understand, lower-risk products. An
executive, “is that if some of the important theme going forward is
regulation does get really intense it that “people will demand more
might actually increase indiscriminate transparent, clear and easy to
risk-taking as opposed to not, because understand products,” says the CEO of
people still need to get returns from a Europe-based investment manager.
somewhere.”
“A lot of investment managers are
Instead, the executive argues in favor taking a closer look at their cost-
of a shift in the marketplace to more income ratios and are beginning to
intelligent yield management. This realize we cannot consistently throw
Innovation in Japan involves the introduction of greater risk things into the marketplace and hope
After the market collapse in management in the process, regarding they stick,” says one executive. “There
the late 1990s, the regulatory both individual stock selection and was constant ‘innovation,’ which
approach in Japan became downside protection. Although there wasn’t really innovation, it was just
more severe. Financial is a balance to master, the benefit is product production, and that is going
companies’ activities a more consistent stream of modest to slow down. We have to be more
returns that meet investors’ long-term intelligent in how we deliver things to
subsequently became more
liabilities, he says. the marketplace.”
backward looking, and the
market stagnated. And the
innovation debate in Japan is
Product Innovation In this regard, some of the proposed
legislative changes around advisory
still ongoing, with Japan’s FSA In the aftermath of the Lehman relationships could help, he adds: “If
(Financial Services Agency) Brothers collapse, supervisory you are getting paid on an advisory
investigating whether authorities have sought to reduce the basis, and not on a commission basis,
risks in the system resulting from you will be more thoughtful in how
derivative transactions,
complex instruments, such as credit you deal with clients’ portfolios, what
including transactions on
derivatives. Moves by the G20, US you advise, and I think a lot of this
exchanges, should be
Treasury and European Union to push turnover will go away. Hence
made subject to the ban consistent flagship products that
as much OTC derivatives trading as
on unsolicited offers. generate consistent alpha will have
possible through regulated trading
A conclusion is due in the more success than this churn and burn
platforms and clearing houses are
first half of this year. one response. One concern is that strategy that most of us were doing.”

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       1 7

Innovation, not exoticism there are product and investment In summary, investors will receive
strategy flexibilities under UCITS III better protection in the future
Although the regulatory and investor
that many investment managers are through regulatory push for greater
appetite for excessively complicated,
still not exploiting to the full. transparency, and performance and
high-risk products has diminished, if
choice will not ultimately suffer.
only temporarily, there is still room for For instance, the chief executive of one
Innovation — in the search for
innovation in the creation of new types European investment manager notes
products and services that meet
of transparent and simple products, that his firm is planning to implement a
clients’ investment requirements —
even within passive strategies. Those strategy that will make use of alternative
will remain a feature of the industry.
firms that can crack that nut will do well. products via exchange-traded funds or
The investment management industry
exchange-traded commodities.
As one chief executive observes: “If is fully engaged with client-driven
Possibilities exist to engage in hedge
you look at what I’ll call secondary innovation, and will need to continue
fund-like long/short equity strategies as
guarantees on various equity to develop strategies that remain
well. “The current regulation allows us
products–be they capital protected aligned with client needs. This client-
to do a lot of things that we are still not
strategies, a blurring of the boundary centric approach will produce further
doing, so it is hard for me to say we
of what used to be variable annuity opportunities for innovation and result
need further deregulation, or further
guarantees in the US market, in a stronger, healthier sector.
possibilities for our investment strategy.”
guaranteed minimum withdrawal
benefits, guaranteed minimum However, some tax initiatives may
income benefits–in certain stifle the use of a diversified range of
jurisdictions they are being added to products. In the US, one proposal is for Will pressure from global regulation materially
reduce product innovation in our industry?
investments to allow those to be really a transaction tax of 0.25% on stock
good retirement products for the trades in excess of US$100,000, and of
ageing populations. So there is still 0.02% on various derivatives. Although
room for innovation. But the people politicians may argue it is an innocuous
who buy those products are going to amount, if introduced the tax would
be very careful as to how the products increase financial transaction costs,
are constructed, how they have with a particularly deleterious impact
been stress-tested and who the on high-frequency traders, reducing
25% 75%
counterparties are who are part of trading volume and hence liquidity, to
the product manufacture process.” the detriment of all investors, including
the man on the street, argues one
Current opportunities executive. However, regulatory
enterprise may also allow innovative tax
In Europe, the latest UCITS iterations
schemes to increase the attractiveness
have drawn broad industry support for
and client-centricity of a new range of
the opportunities they present. Indeed,
products. Yes No

Keep Whilst there may be some impact on certain investment strategies and asset classes as
in a result of increased regulation, overall the needs of investors for higher returns will prove
mind a key element in driving innovation. The investment management industry, hedge funds in
particular, have proved in the past that they are able to be innovative to react to client needs.
The challenge of course is to do this without leading to excessive or hidden risk taking which
of course we saw in the financial crisis. Let us hope that investment managers, regulators
and investors have learned those lessons.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
1 8       K E E P I N G A H EAD OF THE CURVE

V
Costs and fees
According to one CEO, “80% of my Inevitably, cost changes will hit
costs are personnel. You can carry on different parts of the industry in Cooper Review
about the cost of regulation, and different ways, with varying impact The Super System Review,
everyone will whine about it, but it according to products, channels and launched in May 2009 under
isn’t that great.” Costs have been geographies. For instance, the Jeremy Cooper, is tasked with
rising in recent years because of alternative investment space — examining and analyzing the
other factors, such as product particularly structured products — will governance, efficiency,
proliferation, which require additional face a greater regulatory burden, as
structure and operation of
staff, says the executive. will retail distribution channels. By
Australia’s superannuation
contrast, the potential under UCITS IV
Despite this observation, interviewees system. The final report will be
should result in cost reductions.
generally agreed that costs will rise — delivered by June 30, 2010.
probably significantly — as a result of Meanwhile, there is a different
regulation. Investment management perspective to the cost debate across The Cooper Review is a
firms will face a general increase in their the Asia-Pacific region compared to fundamental investigation
legal, compliance, operational and IT North America and Europe. In Japan, of the structure of
expenses, in order to meet enhanced the regulatory environment was superannuation that will
and changing regulatory responsibilities tightened substantially many years impact the economics of the
in areas such as documentation, ago. Following the Enron incident, industry, says the chief
registration of funds, implementation of there was also an internal control executive of an Australian
trade compliance controls, trading requirement imposed on international investment management
disclosures and regulatory reporting. companies operating in Japan.
organization. One likely
And although technology can be an Together, regulatory-related costs in
outcome is that management
important enabler of the processes that Japan have already increased
fees will fall from their
need implementing, ultimately it takes significantly. However, in recent years,
current level of 200 basis
knowledgeable people to build the there has been a reassessment of the
processes and manage the outputs. The supervisory environment in favor of points, he says. “One of the
core need, therefore, is an enhanced adopting a regulation by principle easiest ways to make that
compliance operating structure. approach, which could alleviate some shift is moving from active to
of the burden. As a result, costs in the passive management, which
The cost burden will be particularly
current environment are not expected would take anywhere from
acute for investment managers that
to increase substantially, barring any 30–60 basis points out of that
are active internationally, since they
big financial scandal. Likewise, in value chain.”
will have to contend with a diversity
Australia, some interviewees argue
of regulation. The reason for this is
that with the existing high regulatory
that while principles can extend
standards in place, regulation is
internationally, detailed rules tend to
unlikely to become much more
be national, resulting in micro-
stringent. Costs, therefore, will not
specialisms, and hence a need for
rise substantially.
more expertise on the ground.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       1 9

The cost burden will


be particularly acute
for investment
managers that are
active internationally,
since they will have
to contend with a
diversity of
regulation.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
2 0       K E E P I N G A H EAD OF THE CURVE

Fees
A minority of the interviewees felt that have a little bit more girth around the
investment managers will seek to pass waist than they need. We can get
on any increase in costs in the shape more efficient.”
of higher fees.
An alternative strategy to offset margin
Most of the executives interviewed did pressure is for firms to change the mix
not feel this would be the case — at of their portfolios from conservative
least in the current environment. “Our products with low fees to more
ability to increase fees at this point is diversified offerings, suggests another.
really tough. Right now competitive “If you have a sufficiently broad
pressures suggest we can’t,” says one catalogue where you can do balanced
Europe-based chief executive. That is portfolios, or a bit of equities, even if it
particularly true in the institutional is very focused, that will allow you to
space, where competition is intense. change the mix to offset the pressure
Instead the answer lies in managing on fees.” In this way, this could act as
costs better, including through another force driving product innovation,
productivity improvements. “Most as firms seek out higher-margin
asset management companies still products to offer clients.

Regulators in various Transparency of costs to the investor


jurisdictions are focusing on Whatever the eventual impact on compulsory system the government
improving transparency in amounts, fees charged by all parties in should do as much as it can to reduce
commission arrangements in the value chain are under increased fees to the essential minimum that
the sale of retail funds, tackling regulatory and client scrutiny. This is needs to be charged to the investor.”
potential conflicts of interest putting pressure on participants to
However, the proposed transparency
and making it clearer to fund justify, and where possible reduce,
changes potentially make it more
purchasers what their fees pay. what they charge for the services
complicated for consumers to buy
For example, the Ripoll Inquiry they provide.
products, argues an executive at a
in Australia, the EU’s Markets in There is significant scrutiny in the retail European asset manager. “To my mind
Financial Instruments Directive arena on what financial advisors receive the jury is out on that, whether in the
(MiFID) and the UK Financial for the sale of investment products, interests of pure transparency we
Services Authority’s (FSA) Retail what investment managers charge to forget consumers like the approach
Distribution Review (RDR) manage their retail or wholesale of pure simplicity.”
include provisions to this effect. investment mandates, and what
Whatever the impact on buying
In the US, the Securities and charges the platform providers levy on
behavior, changing the regimes means
Exchange Commission (SEC) is financial advisors for their administration
investment managers will have to
likewise considering reforming services, says one Australia-based
rethink and restructure the intermediary
executive. In Australia in particular,
mutual funds’ 12-b1 fees. compensation arrangements traditionally
which has compulsory retirement
used and perhaps their whole retail
savings, “there are a whole series of
distribution strategy.
regulatory actions that are saying in a

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       2 1

The performance fees debate


According to one European chief performance fees. However, there are
executive, one of the deficiencies of concerns as to how transparent those
What effect do you think the global reform
the traditional asset management are to retail investors. As a result, the agenda will have on fees?
industry is that firms are charging high BaFin has reopened the debate, and
fixed management fees, regardless of is pushing firms to adopt transparent
whether the fund delivers any value calculation mechanisms — for
for the investor: “It is like if all cars example specifying a clear benchmark
had the same price. But it depends on and a high watermark — that they
7%
the quality of the car.” A better must respect if they want to charge a
arrangement would be, for instance, performance fee. A resolution to the
to have equity funds charging 30 basis matter is expected later this year. 73%
20%
points, and a big performance fee if
Overwhelmingly, the executives we
they deliver more than their
spoke to felt regulation is adding to
benchmark, the executive argues.
industry costs, albeit in varying
“That is how I see a much more
degrees according to a firm’s area of
efficient industry.”
operation. For now at least, the
Meanwhile, in Germany, the regulator majority view is that investment
(BaFin) also began discussions recently managers will not be able to pass that No effect

on the issue of performance fees. cost burden on to clients by increasing Fees will have to rise at least 10%

Previously, the BaFin restricted the fees. So the fact that they will have to Fees will have to rise, but no more than 5%
ability of existing funds to raise fees. absorb expenses internally will Fees will have to rise 5 – 10%
The restrictions have since been generate a vigorous surge, wherever
removed, which in the last few years possible, for efficiency gains that can
resulted in a dramatic rise in the help offset costs.
number of mutual funds charging

Keep It is well understood that regulatory compliance costs will rise as new regulation appears. The
in challenge to investment managers is how to absorb this cost without passing it to the client.
mind The latter will be increasingly difficult due to greater investor and regulator demands for
transparency, as the investor is able to see, understand and compare charges there will be
greater pressure on fees.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
2 2       K E E P I N G A H EAD OF THE CURVE

VI
The people agenda
Remuneration
In a number of countries, remuneration that these schemes could act as a remuneration changes, for the most
practices have become a point of disincentive for portfolio management part, organizations’ ability to attract
intense focus for governments, teams who adopt them, whose talent and retain talent will not be seriously
regulators, tax authorities, the media is highly portable, resulting in affected.
and the public at large, with bonus increased inter-organization movement
payments being closely scrutinized. The and new firm set-ups. In addition,
counter argument forwarded by many increasing the fixed cost element of Will increased regulation/heightened focus on
in the industry is that competitive remuneration takes away a useful tool remuneration impair our industry’s ability to
attract talent?
compensation packages are essential that has helped investment managers
for attracting and retaining the talented cut costs in market downturns —
staff that drive financial institutions’ reducing bonuses.
profitability. “If you don’t have talent you
Although bank-owned investment
can’t produce alpha,” argues the CEO of
managers in particular face such
one European organization. “Those asset
changes to their remuneration policies,
managers that have a good business
such firms will not necessarily struggle 38%
model, that can compensate and incent 62%
to attract and retain staff, observes the
their people the right way, will attract the
chief executive of a large European
best talent, and consequently will be
investment management firm. Instead
able to deliver the best and most
the allure of working for such
consistent alpha,”said another CEO.
organizations means staff may feel
However, the impact for affected firms that over time “I will be able to do
is not necessarily in terms of how more business, and my overall
much they pay staff in total, but the compensation will be higher than Yes No
manner in which they are paid, with a elsewhere,” notes the executive.
switch toward higher basic, lower
Given that much of the investment
bonuses and bonus packages being
management industry will not be
deferred for 2–3 years. There is a risk
caught up in regulatory-enforced

Mobility
In addition to the movement between believes the remuneration issue “is employees becoming increasingly
organizations, relocation abroad may probably a factor that will accelerate mobile, asset managers are becoming
be one result of curtailments that that, potentially quite dramatically.” ever more sensitive to tax variations
affect how investment managers around the world. As one Europe-based
Developments in taxation can similarly
compensate staff and alterations to executive argues, the marginal rate of
have both positive and negative effects
remuneration and taxation policies. personal tax is hugely important. “It is a
for investment management organi-
Although growing numbers of global world now, particularly in asset
zations and the staff they employ.
investment managers are allowing management… And they are now
Indeed, with the industry becoming
staff to work abroad, one executive saying why bother [being located there].”
increasingly globalized, and with

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       2 3

In the UK, a slew of tax developments corporations would probably move to


have been introduced, and the tax Asia, rather than other parts of Europe,
Increased attention by regulators on personal
position for many financial services jurisdictions such as Luxembourg or
accountability of directors will make it harder to
employees elsewhere has deteriorated Switzerland, says one chief executive. attract top people to directorships. Do you agree
sharply as governments need to deal “Personally, I think Hong Kong, with this statement?
with the deficits they face. Singapore, even Shanghai would see a
bigger migration than Switzerland.”
Developments in taxation, therefore,
could spark an exodus of people, and Arguably, even more important to
potentially corporations, to lower tax individuals’ and companies’ decisions
regimes that offer more favorable than actual changes to rates is the tax 50%
tax rates. uncertainty that exists in many
countries at present.
Within Europe, there has been some
50%
flight to Switzerland. However, some
interviewees pointed out that big

Attracting top talent to directorships


The issue of attracting and retaining subsequent reduction in the number
professional talent, both internally of roles an individual will be able to Yes No

within the organization and in a broader accept, may result in directors’ fees
sense within the national jurisdiction, rising. In addition, organizations will
extends to top management positions. have to demonstrate protection
There are concerns within the industry mechanisms and adequate liability
that remuneration policy alterations, coverage to mitigate the risks directors
added to increased personal are required to assume.
accountability requirements, will result
However, some executives argue
in a shortage of candidates willing to
that, given the level of regulation
take on the role of director. As
already in place and the responsibility
expressed by one executive, “People
directors feel for their roles, there will
are wondering is it worth it? The money
be no great change to the situation.
that is paid is probably disproportionate
Regulatory initiatives are supportive
to the risk compared to other things
of best practices in the industry,
you can do with your skills.”
which already structure compensation
The increasing onus on non-executive to long-term performance, and seek
directors, intensified time expected to to foster long-term retention.
be devoted to each position and

Keep Although the appeal of moving to a lower cost jurisdiction can be significant, simply working
in outside of higher tax cost jurisdictions may not be sufficient to effectively move tax
mind residency to a lower tax regime. Rules vary and are complex, in some countries, factors such
as maintaining a home, as well as the frequency of visits, are all contributing factors in
determining whether an individual remains tax resident in a jurisdiction, regardless of their
employment arrangement. Evolving remuneration structures that deliver greater tax
efficiency in high cost tax jurisdictions therefore remain an important tool in dealing with the
People Agenda.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
2 4        K E E P I N G A H EAD OF THE CURVE

Responding to some
of the challenges ahead
Challenges Possible ways of approaching challenges
Strategy The uncertainty we have over regula- While we remain in the regulation formulation stage investment managers should:
tion and its strategic impact is a chal- • Stay close to the debates and influence where possible
lenge to CEOs and strategy executives.
• Keep options open, particularly with regard to location
Over time initiatives will get finalised
and impact assessments done. • Diversify as much as practical to reduce reliance on single strategies
• Look for tactical opportunities that will come up – perhaps in M&A
As soon as regulatory initiatives are finalised impact assessments can be under-
taken and strategic decisions made.

Business model The shift toward more restrictive • Retail market: Indirect incentives to distribution channels, with trailer fees
regulation has not yet affected market is no longer a way of keeping market share – high competition has put the
shares and business models. How- investor in a strong bargaining position and fees are coming down. To protect
ever, regulation that focuses on retail their market share retail managers need to identify new strategies and ways
distribution should not be underesti- to differentiate their brand and products in the marketplace. Having a unique
mated as it could have an impact on selling proposition is much more advantageous than being a simple provider
market share. Meanwhile, regulation of exchangeable products.
on the alternatives sector could call for • Professional market1: Foreseeable regulation in the alternative space has strong
changes in the business and operating focus on the “professional market.” The range of eligible investments for this
model. kind of investor will be orientated to the new Non-UCITS brand. The answer
to this demand could be the creation of new sales units with a wider reach
of – so far unregulated – products (including Real Estate, Infrastructure, Single
Investment Funds) which all sit under one umbrella-brand like Private Equity
or Institutional Investment Solutions. Institutional sales could convert from a
“Me-too approach” alongside Banking, Insurance and Retail Fund products to an
independent sales unit as a counterpart to the retail provider.

Operating model The race to achieve superior invest- It is important that investment managers are able to:
ment returns may lead to riskier strate- • Demonstrate that the governance for the investment process provides the
gies. The challenge then becomes proper level of review to ensure the portfolios are within their risk limits;
demonstrating that the firm is manag- and
ing the new risks.
• Develop a robust structure for product development that has an additional
lens into the risks of the product and how to measure investment risk.

1
Institutional investors and High Net Worth Individuals

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E        2 5

Challenges Possible ways of approaching challenges


Investors’ focus on transparency • The first steps include: reviewing and, where necessary, re-engineering the
requires investment management processes for creating marketing materials, client reports, disclosures and
firms to simplify fund information and financial statements.
enhance reporting mechanisms. This • Providing increased transparency to investors on controls and performance
has proven to be difficult to achieve can be done through such established processes as SAS70 and GIPS.
overnight. • Reporting requirements to regulatory bodies or third parties will involve
evaluating and enhancing the capabilities of systems.

Increased compliance costs will need Different organizations will need to approach the cost challenge in different ways.
to be absorbed and not passed on to Firms that have responded to regulatory changes over the last few years will likely
investors. have well established approaches to:
• Streamline management response time and the absorption of changes into
business as usual;
• Drive compensating business efficiencies;
• Embed new controls without layering; and
• Provide transparency of cost drivers which, in turn, drive focus and innova-
tion to reduce costs.
Conversely, organizations that are new to increasing regulatory change should seek
to identify and explore opportunities to drive greater cost efficiencies as opposed
to passing on increased costs in the form of higher fees. Levers available to these
newcomers include:
• More focus on IT expenditure to drive business efficiencies;
• Reviewing outsourcing models;
• Product rationalization;
• Business analyses like Activity Based Costing;
• Efficiency taskforces;
• Unpeeling complexities and removing “non-value adding activities”; and
• Focusing on smarter ways of operating.
At some stage though, there is a tipping point, where tactical solutions have been
exhausted and scale (often driven by consolidation) is the only logical response.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
2 6       K E E P I N G A H EAD OF THE CURVE

Acknowledgements
At the start of 2010 KPMG International conducted a research project to study
CEOs’ opinions on the effect that the evolving reform agenda could have on
their investment management businesses. The result was a great collection of
contrasting and sometimes contradicting views on the level of impact.

Our foremost thanks go to the 17 executives who gave their time for
interviews, spoke to us openly and gave us their frank opinions.

We would also like to thank KPMG partners across the world that
encouraged their clients to participate in our research, members of the
editorial team who provided their time and insights and members of the
project team who have helped us during the life of the project.

Editorial board and commentary contributors:


Tom Brown, KPMG in the UK
Richard Fagnani, KPMG in the US
Gerold Hornschu, KPMG in Germany
Jan Kehrbaum, KPMG in Germany
Jacinta Munro, KPMG in Australia
Richard Pettifer, KPMG in the UK
James Suglia, KPMG in the US
Hugh Burden, KPMG in UK
Christopher Page, KPMG in UK

Project team:
Led by Richard Pettifer, KPMG in the UK
Freddie Hospedales, KPMG in the UK
Nicole Elfassy, KPMG in Canada
Mireille Voysest, KPMG in the UK
Paul Allen, freelance consultant

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E       2 7

“I welcome it [regulation]: I think we’ve


got away with far too little oversight,
and that doesn’t help the industry in the
long run. Self regulation, as much as I
would love to say it works, just doesn’t,”
says the CEO of a global investment
management company.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
2 8        K E E P I N G A H EAD OF THE CURVE

Contacts
AMERICAS
Real Estate Funds
Brazil Mexico Steven Gatt
Traditional Investment Funds Traditional Investment Funds +61 (2) 9335 7303
Alberto Spilborghs Neto Jorge Peña sgatt@kpmg.com.au
+55 11 2183 3140 +52 55 5246 8300
Infrastructure Funds
aspilborghs@kpmg.com.br Pena.jorge@kpmg.com.mx
Kevin Chamberlain
Hedge Funds Traditional Investment Funds +61 (2) 9335 7112
Marco Andre Almeida Victor Pérez kchamberlain@kpmg.com.au
+55 21 3515 9404 +52 55 5246 8300
maalmeida@kpmg.com.br victorperez@kpmg.com.mx China & Hong Kong
Real Estate Funds Real Estate Funds Traditional Investment Funds
Marcio Lutterbach Guillermo Ochoa Bonn Liu
+55 11 3245 8315 +52 55 5246 8300 +852 2826 7241
mlutterbach@kpmg.com.br gochoa@kpmg.com.mx Bonn.liu@kpmg.com.hk
Infrastructure Funds Real Estate Funds/Infrastructure
Jose Carlos Simoes United States of America Funds
+55 11 3245 8383 Traditional Investment Funds Andrew Weir
jcsimoes@kpmg.com.br Wm David Seymour +852 2826 7243
+1 212 872 5988 Andrew.weir@kpmg.com.hk
Canada dseymour@kpmg.com
Traditional Investment Funds Traditional Investment Funds/ Japan
James Loewen Hedge Funds Traditional Investment Funds
+1 416 777 8427 James Suglia Seiji Kamiya
jloewen@kpmg.ca + 1 617 988 5607 +81 (3) 3266 7025
jsuglia@kpmg.com Seiji.kamiya@jp.kpmg.com
Hedge Funds
Peter Hayes Hedge Funds Real Estate Funds/Infrastructure
+1 416 777 3939 Mikael A. Johnson Funds
phayes@kpmg.ca + 1 212 954 3789 David B Lewis
majohnson@kpmg.com +81 (3) 6229 8210
Real Estate Funds
David.b.lewis@jp.kpmg.com
Diane Jeffreys Real Estate Funds
+ 1 416 777 8411 Raymond Milnes Jr.
djeffreys@kpmg.ca + 1 312 665 5023 Korea
rgmilnes@kpmg.com Traditional Investment Funds
Infrastructure Funds
Sean Park
Steve Beatty Infrastructure Funds
+82 (2) 2112 0488
+1 416 777 3569 Richard Lee
Spark4@kr.kpmg.com
sbeatty@kpmg.ca + 1 212 872 6560
richardlee@kpmg.com Real Estate Funds
Costa Rica Ha Kyoon Kim
ASIA AND PACIFIC +82 (2) 2112 0271
Traditional Investment Funds
hakyoonkim@kr.kpmg.com
Erick Brenes
+506 2201 4147 Australia Infrastructure Funds
erickbrenes@kpmg.com Traditional Investment Funds/ Chang-Soo Lee
Hedge Funds +82 (2) 2112 0600
Traditional Investment Funds
Jacinta Munro changsoolee@kr.kpmg.com
Alonso Arroyo
+61 (3) 9288 5877
+506 2201 4116
jacintamunro@kpmg.com.au Malaysia
aarroyo@kpmg.com
Traditional Investment Funds Traditional Investment Funds/Real
Traditional Investment Funds
Paul Reid Estate Funds
Eric Alfaro
+61 (2) 9335 7829 Foong Mun Kong
+506 2201 4273
pmreid@kpmg.com.au +60 (3) 2095 3388
ericalfaro@kpmg.com
munkongfoong@kpmg.com.my

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E        2 9

Real Estate Funds


New Zealand Bahrain
Malcolm McLarty
Traditional Investment Funds Real Estate Funds +33 1 5568 7055
Bill Wilkinson Ahmed Hussain malcolmmclarty@kpmg.com
+64 (9) 367 5997 +974 432 9698
bwilkinson1@kpmg.co.nz ahhussain@kpmg.com Infrastructure Funds
Wilfrid Lauriano do Rego
Real Estate Funds +33 1 5568 6872
Paul Herrod Belgium
wlaurianodorego@kpmg.com
+64 (9) 367 5323 Traditional Investment Funds
pherrod@kpmg.co.nz Stéphane Darimont
+32 270 84701 Germany
sdarimont@kpmg.com Traditional Investment Funds
Philippines
Gerold Hornschu
Traditional Investment Funds Real Estate Funds +49 69 9587 2504
Edwin Latoza Koen Maerevoet ghornschu@kpmg.com
+63 (2) 885 7000 +32 270 83867
elatoza@kpmg.com kmaerevoet@kpmg.com Traditional Investment Funds
Hans-Juergen A. Feyerabend
Singapore Central & Eastern Europe +49 69 9587 2348
hfeyerabend@kpmg.com
Traditional Investment Funds Infrastructure Funds
Kok Keong Leong Jon Mortimer Hedge Funds
+65 6213 2008 +420 222 123 127 Frank Aussendahl
kokkeongleong@kpmg.com.sg jmortimer@kpmg.cz +49 69 9587 2350
faussendahl@kpmg.com
Real Estate Funds Infrastructure Funds
Chee Meng Yap Alex Verbeek Real Estate Funds
+65 6 213 2888 +420 222 123 431 Oliver Zucker
cheemengyap@kpmg.com.sg averbeek@kpmg.cz +49 211 475 7002
ozucker@kpmg.com
Taiwan Cyprus Infrastructure Funds
Traditional Investment Funds Hedge Funds Niels Buck
Winnie Fang Angelos Gregoriades +49 40 32015 5848
+886 2 2715 9999 +357 2220 9000 nbuck@kpmg.com
wfang@kpmg.com.tw gregoriades@kpmg.com.cy
Real Estate Funds India
Judy Chien Denmark Traditional Investment Funds
+886 2 2715 9999 ext: 3666 Real Estate Funds Manoj Vijai
judychien@kpmg.com.tw Allan Pedersen +91 (22) 3983 5121
+45 3818 3533 mkumar@kpmg.com
Thailand apedersen@kpmg.dk
Hedge Funds
Real Estate Funds Ravi Trivedy
Piyanuch Nitikasetrsoonthorn Finland +91 (22) 3983 6202
+66 2 677 2787 Traditional Investment Funds rtrivedy@kpmg.com
piyanuch@kpmg.co.th Ritta Pyykko
Real Estate Funds/Infrastructure
+358 20760 3688
Funds
Vietnam Ritta.pyykko@kpmg.fi
Jai Mavani
Real Estate Funds Real Estate Funds +91 (22) 3983 5724
Van Hien Ninh Hakan Malmlund jmavani@kpmg.com
+84 8 8219 266 ext: 3666 +358 20760 3397
ninhvanhien@kpmg.com.vn Hakan.malmlund@kpmg.fi Ireland
Traditional Investment Funds
EUROPE, MIDDLE EAST & France Darina Barrett
AFRICA (EMA) Traditional Investment Funds +353 (1) 410 1376
Gérard Gaultry darinabarret@kpmg.ie
Austria +33 1 5568 7030
Hedge Funds
Traditional Investment Funds ggaultry@kpmg.com
Brian Clavin
Ferdinand Kleemann Hedge Funds +353 (1) 410 1252
+43 1 3133 2416 Denis Le Chevalier brianclavin@kpmg.ie
ferdinandkleemann@kpmg.at +33 1 5568 7017
Real Estate Funds
Real Estate Funds dlechavalier@kpmg.com
Olivia Lynch
Johann Perthold +353 (1) 410 1735
+43 1 3133 2258 Olivia.lynch@kpmg.ie
jperthold@kpmg.at

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
3 0        K E E P I N G A H EAD OF THE CURVE

Israel Netherlands South Africa


Real Estate Funds Traditional Investment Funds Traditional Investment Funds
Daniel Bernshtein Martijn Huiskers Gary Pickering
+972 3 684 8130 +31 20 656 7468 +27 21 408 7310
dbernshtein@kpmg.com Huiskers.martijn@kpmg.nl Gary.pickering@kpmg.co.za
Real Estate Funds Real Estate Funds
Italy Hans Grönloh Leigh Wormald
Traditional Investment Funds +31 20 656 7792 +27 11 647 8309
Paolo Valsecchi Gronloh.hans@kpmg.nl Leigh.wormald@kpmg.co.za
+39 02 67 631
Infrastructure Funds
pvalsecchi@kpmg.it Spain
Jaap van Roekel
Hedge Funds +31 20 656 7623 Traditional Investment Funds
Roberto Fabbri Vanroekel.jaap@kpmg.nl Pedro Gonzalez Millan
+39 02 67 631 +34 914 563 400
rfabbri@kpmg.it Norway pjgonzalez@kpmg.es
Real Estate Funds Traditional Investment Funds Hedge Funds
Maurizio Nitrati Thor Leegaard Francisco J Muñoz Neira
+39 06 80 9711 +47 2109 2048 +34 914 563 400
mnitrati@kpmg.it Thor.leegaard@kpmg.no fjmunozneira@kpmg.es
Infrastructure Funds Real Estate Funds Real Estate Funds
Giovanni Barbara Ole Christian Fongaard Elena Pisonero Ruiz
+39 02 67 6441 +47 4063 9086 +34 914 563 400
gbarbara@kpmg.it Ole.fongaard@kpmg.no episonero@kpmg.es
Infrastructure Funds
Luxembourg Poland Ignacio Andino Riestra
Traditional Investment Funds Traditional Investment Funds +34 914 563 400
John Li David Pozzecco iandino@kpmg.es
+352 22 51 51 6200 +48 22 528 1076
Infrastructure Funds
John.li@kpmg.lu dpozzecco@kpmg.pl
Andrew Brett
Traditional Investment Funds Real Estate Funds +34 914 563 400
Vincent Heymans Steven Baxted andrewbrett@kpmg.es
+352 22 51 51 7917 +48 22 528 1046
Vincent.heymans@kpmg.lu sbaxted@kpmg.pl Sweden
Hedge Funds Traditional Investment Funds
Victor Chan Yin Portugal Jan Forsell
+352 22 51 51 6514 Traditional Investment Funds +46 (8) 7239 592
Victor.chanyin@kpmg.lu Vitor Ribeirinho Jan.forsell@kpmg.se
+351 210 110 161
Real Estate Funds/Infrastructure Real Estate Funds
vribeirinho@kpmg.com
Funds Ann-Cathrin Kollfeldt
Alison Macleod Real Estate Funds +46 (8) 7239 428
+352 22 51 51 6873 Joao Augusto Ann-cathrin.kollfeldt@kpmg.se
Alison.macleod@kpmg.lu +351 210 110 000
Real Estate Funds
jaugusto@kpmg.com
Björn Flink
Mauritius +46 (08) 7239 482
Traditional Investment Funds Russia Bjorn.flink@kpmg.se
Subhas Purgus Traditional Investment Funds
+230 207 8822 Adrian Quinton Switzerland
spurgus@kpmg.mu +7 495 937 2960 ext: 12442
Traditional Investment Funds/
aquinton@kpmg.ru
Hedge Funds Hedge Funds
Jean Claude Liong Real Estate Funds Markus Schunk
+230 2078877 Natalia Malioutina +41 44 249 3336
jcliong@kpmg.mu +7 495 937 2968 markusschunk@kpmg.com
nmalioutina@kpmg.ru
Real Estate Funds Real Estate Funds
Wilfrid Koon Kam King Stefan Pfister
+230 207 8800 Saudi Arabia +41 44 249 2667
wkoonkamking@kpmg.mu Traditional Investment Funds Stefanpfister@kpmg.com
Andrew Jackson
+966 3 887 7241 Infrastructure Funds
atpjackson@kpmg.com Tobias Valk
+41 44 249 3329
tobiasvalk@kpmg.com

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
KEEPING AHEAD OF THE CURV E        3 1

Turkey Bahamas Guernsey


Traditional Investment Funds Traditional Investment Funds/ Traditional Investment Funds/
Ozkan Genc Hedge Funds Hedge Funds
+90 (212) 317 7400 Diveane Bowe Neale Jehan
ogenc@kpmg.com +1 242 393 2007 +44 1481 721 000
dbowe@kpmg.com.bs njehan@kpmg.guernsey.gg
Real Estate Funds
Yuksel Ozay Real Estate Funds
+90 (212) 317 7400 Tracy Knowles Gibraltar
yozay@kpmg.com +1 242 393 2007 Traditional Investment Funds/
teknowles@kpmg.com Hedge Funds
Infrastructure Funds
Michael Harvey
Hande Senova
Barbados +350 200 48600
+90 (212) 317 7400 ext: 445
michaelharvey@kpmg.gi
hsenova@kpmg.com Traditional Investment Funds/
Hedge Funds
Carol Nicholls Isle of Man
United Arab Emirites
+1 246 427 5230 Traditional Investment Funds/
Traditional Investment Funds
cnicholls@kpmg.bb Hedge Funds
Phil Knowles
Dave McGarry
+971 (4) 403 0300
Bermuda +44 1624 681 044
philknowles@kpmg.com
dmcgarry@kpmg.co.im
Traditional Investment Funds/
Real Estate Funds
Hedge Funds Real Estate Funds
Robert Hall
Neil Patterson Neil Duggan
+971 (4) 403 0330
+1 (441) 295 5063 +44 1624 681 055 ext: 2457
Rhall1@kpmg.com
neilpatterson@kpmg.bm nduggan@kpmg.co.im
Sovereign Wealth Funds
Hedge Funds
Ashish Dave Jamaica
Theo Evangelakos
+971 (4) 403 0308 Traditional Investment Funds
+1 (441) 295 5063 ext: 417
ashishdave@kpmg.com Nigel Chambers
theoevangelakos@kpmg.bm
+1 (876) 922 6640
United Kingdom nrchambers@kpmg.com.jm
British Virgin Islands
Traditional Investment Funds/
Traditional Investment Funds/
Hedge Funds Malta
Hedge Funds
Tom Brown Traditional Investment Funds
Tanis McDonald
+44 20 7694 2011 Noel Mizzi
+1 284 852 4805
Tom.brown@kpmg.co.uk +356 2563 1014
tmmcdonald@kpmg.vg
Traditional Investment Funds/ noelmizzi@kpmg.com.mt
Sovereign Wealth Funds Channel Islands Hedge Funds
Richard Pettifer Traditional Investment Funds/ Tonio Zarb
+44 20 7311 5749 Hedge Funds +356 2563 1011
Richard.pettifer@kpmg.co.uk Neale Jehan toniazarb@kpmg.com.mt
Real Estate Funds +44 1481 721 000
Jonathan Thompson njehan@kpmg.guernsey.gg Netherland Antilles
+44 20 7311 4183 Real Estate Funds Traditional Investment Funds/
Jonathan.thompson@kpmg.co.uk Heather MacCallum Hedge Funds
Infrastructure Funds +44 1534 608 403 Sanjay Agarwal
Tony Rocker hmaccallum@kpmg.jersey.je +599 9 732 5176
+44 20 7311 6369 Agarwal.sanjay@kpmg.an
Anothony.rocker@kpmg.co.uk Grand Cayman
Traditional Investment Funds/ Trinidad and Tobago
EMA OFFSHORE Hedge Funds Traditional Investment Funds/
LOCATIONS Andrew Stepaniuk Hedge Funds
+1 345 914 4315 Robert Alleyne
Anguilla astepaniuk@kpmg.ky +1 (868) 623 1081
Ralleyne@kpmg.co.tt
Traditional Investment Funds/ Hedge Funds
Hedge Funds Anthony Cowell
Cleveland Seaforth +1 345 914 4338 Turks and Caicos Island
+1 268 462 8868 A cowell@kpmg.ky Traditional Investment Funds/
cseaforth@kpmg.ag Hedge Funds
Gary Brough
+1 (649) 946 4613
gbrough@kpmg.tc

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
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The information contained herein is of a general nature and is not intended to address the © 2010 KPMG International Cooperative (“KPMG Interna-
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circumstances of any particular individual or entity. Although we endeavor to provide accurate and independent firms are affiliated with KPMG International. KPMG
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Design by Evalueserve
Publication name: Keeping ahead of the curve
Publication number: 1004518
Publication date: May 2010