The Investor's Perspective James Suglia, KPMG LLP

Renewing the Promise: Time to mend relationships in Investment ManagementSeptember, 2009

INVESTMENT MANAGEMENT

FINANCIAL SERVICES

2© 2009 KPMG International. KPMG International provides no client services and is a Swiss cooperative with which the independent member firms of the KPMG network are affiliated.

About the research

survey respondents

in-depth interviews

countries around the world

SIZE AND REACH

288 22 29

RESPONDENTS BY TYPE

35% 25%17%11%10%

wealth managers

investment managers

pension funds

insurance companies

family offices

sovereign wealth funds02%


Overview

In this research we uncovered gaps and contrasting views, guides for the industry in addressing key areas vital for recovery We focus on four topics:

corporate governance and risk management trust in intermediaries expected future regulation the strategic importance of differentiation

Critical steps towards recovery: large-scale change and in mending relationships through improving communication and transparency within the industry


Corporate governance and risk management: changing and its obstacles

Why implement changes?

What is the major obstacle to change?

46% of Investors think that their trust will be restored in the short term if this happens

of Investment Managers globally selected ‘Lack of vision by top management’ as the main factor slowing progress

65%


How is the industryperforming

in these areas?

Performing very badly Performing very well

1.

2.

3.

4.

InvestorsInvestment Managers

Corporate governance and risk management: are we focusing on the right things?

What should investment Managers prioritise?

Investors’ wish list:

1. Visibility on reportsissued by regulators

2. Adherence to bestpractice codes of conduct

3. Obtain more independentassurance

4. Use of externalindependent directors

Source: Datamonitor


How can trustin them

be restored?

Lack of trust: What are the keys to re-open the door?Investors: Financial Intermediaries are less trustworthy than politicians

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%77%

25%

Investment ManagersInvestors

64%

72%

75%

55% 60% 65% 70% 75% 80%

Better training on investment managers products

Provide real evidence of better risk management practices implemented

More transparency: performance & fees

Investment Manager’s view Selected by

Institutional Investors

Retail Investors

Better training on products 58%

Disclosure of value-at-risk details 39%

Provide real evidence of better risk management practices that investment managers have implemented

36% 37%

More transparency with regard to performance and fees

33%

Supporting literature providing insight into how products fit overall investment strategies

33%

Face to face access to fund managers 30%

Source: Datamonitor


Lack of trust: the transparency key

Transparency has become a major subject for restoring trust in the entire industry

Strongly agree Somewhat agree

0% 20% 40% 60% 80% 100%

Somewhat disagree Strongly disagree

…investment risk

…investment strategies

I/my clients would like more transparency from Investment Managers on…

Source: Datamonitor


Regulatory reform: the difference between will and should

What will – according to different respondent groups:

Investment manager’s view

77% 76% 76% 76%

0%

20%

40%

60%

80%

100%

1 2 3 4

Institutional Investors’ view

4 5 3

53%48% 46%

0%

20%

40%

60%

80%

100%Retail Investors’ view

5 6 4

50%

38% 38%

0%

20%

40%

60%

80%

100%

1 Placing limitations on leverage2 Levels of disclosure to clients3 Engage in additional external assurance

4 Risk management and internal controls5 The shorting of shares6 Levels of regulatory reporting

Source: Datamonitor


Regulatory reform: the difference between will and should

The use of derivatives

Level of disclosure to clients

Corporate governance and limits to product innovation

The shorting on shares

Risk management and internal controls

Placing limitations on leverage

12 3

12 3

What should:What will:


Regulatory reform: the worries

of Respondents think more regulation will remove opportunities for innovation going forward

feel that a clamp down will seriously increase costs for investment managers

think investment managers will be unable to pass on these associated costs to their clients

81%

63%72%


Regulatory reform: impact on traditional sector

Investment Managers:

regulation on levels of disclosure to clients is most likely to pass in the Traditional sector and is likely to have the highest impact on the industry’s profitability

Traditional investment funds

Like

ly im

pact

on

the

indu

stry

’s p

rofit

abili

ty

Likelihood of new regulations

Source: Datamonitor

Less likely

More likely

Less limiting

More limiting


Regulatory reform: impact on alternatives sector

Investment Managers:

regulation on the extent of external assurance is most likely to pass in the Alternatives sector and is likely to have the highest impact on the industry’s profitability

Alternative investment funds

Like

ly im

pact

on

the

indu

stry

’s p

rofit

abili

ty

Less limiting

More limiting

Likelihood of new regulationsLess likely

More likely


Differentiation: is it that hard?

of Respondents think that it has become more important for investment managers to differentiate themselves77%Investors top ideas for differentiation:

focusing on client communications

stakeholder relationship management

improved marketing and communication

12 3


Differentiation: is it that hard?

What criteria will Investors use in choosing their investment manager in the next 12 months?

2. Financial stability of the provider

3. Investment performance

4. Low fees

5. Service quality

6. Personal relationships

1. Transparency on products

Universal modelstrength

Boutiquestrength

? ?

What does it all mean?


Investor perspectives matter

Their perspectives differ Investors want:

more transparency and better communication

And they want that with: Investment Managers and

Financial Intermediaries


Financial intermediaries need support

Financial Intermediaries are a vital piece in the value chain

They would benefit from better training and support on products from Investment Managers

The return of trust depends on the above


Regulation is unavoidable

Further regulation is inevitable and necessary

But: it could increase costs and stifle

innovation

And: it could end up focusing in the

wrong areas


Investment Managers back-to-basics

Client at the core: client relationship management clear communications quality service fund managers available to

clients

Build closer relationships with fewer Financial Intermediaries

Work collaboratively to restore investor trust

James SugliaGlobal Head of Investment Management Advisory

KPMG in the US+1 617 988 5607

[email protected]

www.kpmg.com

© 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind

KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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The Investor's Perspective James Suglia, KPMG LLP

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