Global survey: 41% of global investment management industry in the red - structured approach to cost management separates winners from losers

The investment management industry has been through some of the toughest times
in its modern history. Consequently, a global SimCorp StrategyLab survey
indicates that as much as 41% of the entire industry is operating with cost
rates at or above 99%. Financial top performers in the industry tend to pursue
structured cost reduction methodologies such as Business Process Improvement
(BPI) or Lean Six Sigma. Cost ratios have become fundamental in distinguishing
winners from losers across the full range of asset managers, says Director of
SimCorp StrategyLab, professor Ingo Walter. 

Close to half of the surveyed investment businesses (43%) in the Global
Investment Management Cost Survey 2009 have been through cost cutting projects
in the past two years. Of those, more than half (55%) have been targeting cost
of labour. Of all businesses surveyed, on average only 41% have been able to
sustain the achieved cost reductions for more than a 12-month-period. 

It is a serious concern that almost three quarters of the respondent businesses
(73%) use no structured cost reduction methodology, despite 72% stating that
given the current market environment, cost management has gained some or
significant strategic importance. 

The findings also suggest that top financial performers with a cost ratio below
85% review their cost structures every six months, use BPI or Lean Six Sigma as
cost reduction methodologies and consult with external advisers in their cost
reduction projects typically having a duration of 7-12 months. Finally, when it
comes to investment strategy, the findings indicate that the best performing
investment management businesses in terms of cost ratio pursue an active equity
or multi-boutique investment strategy. 

“It appears from the data that those investment management businesses that have
adopted a continuous cost improvement approach are the top financial
performers. This also applies to the best managed businesses in manufacturing
(e.g. Toyota) that are aggressive users of BPI as well as Lean Six Sigma
techniques; they also tend to be amongst the top financial performers in their
industry segments,” says cost management specialist, professor Michael Pinedo
of Stern School of Business, New York University. 

Looking to the future, 71% believe that increased competition will intensify
the pressure to re-think cost structures within the organisation, whereas 66%
believe that regulatory changes will demand cost restructuring. Also, increased
pressure from shareholders and investors is expected by 61%. It seems to be
widely perceived across the industry that automation of processes is the most
important cost cutting strategy over the coming three-year period (41%). This
is supported by an average of 46% believing that increased cost efficiency,
greater process efficiency and greater operational efficiency through
automation will be important aspects of cost management in the future. 

Professor Ingo Walter, director of SimCorp StrategyLab comments on the results
of the survey: “Cost levels and structures of asset management businesses have
taken center-stage in the highly stressed financial markets of recent years,
with clients far more sensitive than usual to portfolio efficiency and
performance. Cost ratios have become fundamental in distinguishing winners from
losers across the full range of asset managers, driving the size of assets
under management as well as the profitability of the firms that manage them.
This is likely to continue well into the future - few statistical findings in
modern finance are as persistent and robust as the impact of expenses on e.g.
total fund performance through a variety of financial market cycles. As a key
determinant of asset management charges to clients, product and process costs
have therefore taken on ever-growing importance.“ 

The 2009 global investment management cost survey was initiated and prepared by
SimCorp StrategyLab. The interviews were conducted by The Nielsen Company. The
survey was based on 100 CATI interviews with respondents randomly selected from
investment management institutions around the world. The persons contacted had
cost management as their primary field of work, and/or strategic
responsibility, and/or decision-making with cost management; they were either
members of executive or general management boards. The interviews were
conducted during June and July 2009. 

To download the Global Investment Management Survey 2009 results, go to
www.simcorpstrategylab.com. Other significant publications of SimCorp
StrategyLab in 2009 will include two books and a range of additional surveys. 

                          - - -

Please direct any queries regarding this announcement to: 
Lars Falkenberg, Assistant Director of SimCorp StrategyLab 
lfalkenberg@simcorpstrategylab.com, phone +45 35 44 88 00/+45 26 30 01 27

                          - - -

SimCorp StrategyLab 
SimCorp StrategyLab is an independent research institution, headed by Mr Ingo
Walter, Seymour Milstein Professor of Finance, Corporate Governance and Ethics
at Stern School of Business, New York University. SimCorp StrategyLab research
work focuses on identifying, understanding and suggesting solutions to issues
pertaining to mitigating risk, reducing cost and enabling growth in the
investment management industry. www.simcorpstrategylab.com