Friday, June 10, 2011
The art of negotiation among management companies Part.III
The added value of management companies is based largely on the expertise of their managers. Asset management requires special expertise in research, analysis and asset allocation. Stock selection is the differentiating factor between two managers operating on a single asset class. It is illusory to believe that the outsourcing of the negotiation will generate a visible economy for clients in fund performance. The cost of passing order on the European market is marginal (around 10 basis points) with a strong competitive pressure between the brokers and trading venues. However, the hidden cost of time spent by managers to negotiate orders is increasingly important. Markets in Financial Instruments Directive are of complex activity that is not the heart of business managers. Take away this activity is a real opportunity for management companies that have the critical mass to do so. Still it must choose the organization most in tune with the business strategy and needs. There is no optimal model but a more or less well adapted to the demands of each society.
The outsourcing of the table can be made either:
* Internally within a banking group Intermediation.
* Externally within a company without any financial relationship as proposed.
Whatever model is chosen, the expected services are identical and they cover at least:
* product coverage in line with the needs of the management company enabling it to cover all stocks in its portfolios. This coverage should be as broad as possible in terms of asset classes (stocks, bonds, fixed income, OTC derivatives,) or geographical areas (Europe, Asia,)
* An immediate liquidity and maximum with the connection to all major trading venues (regulated markets) so as to capture liquidity and find the best tariff for execution. Of course, each transaction is respecting the execution policy established by the management company.
* Cutting-edge technology to successfully carry out the rules laid down in the policy of best execution. Markets in Financial Instruments Directive require proof that orders are made in the best interests of customers with traceability and archiving every transaction regardless of the broker or the place of negotiation. These investments in systems of increasing complexity are not always accessible to small societies. Beyond these basic services, independent negotiating structures develop and grow their service offerings to add value for companies seeking to offload management activities become peripheral to the image: