Assignment in module 1

February 14, 2019

By Giorgio Vellani

Working in an international well known financial institution requires having products that deliver financial return within the legal frame.

Competition is strong and the stakes are huge. In 2016 assets under management in US and Europe alone was estimated in 55 USD trillions. Actors, such as the leading within the asset management companies, Black Rock, are managing 6 Billion USD (2018). The size of the market is of such an entity that actors have to find out new ways of creating products that are performing but jet be safe.

 

One of the main principles within finance is that the higher the risk the higher the return (but also the likelihood of losing everting).

 

Management companies are dealing with people individuals savings.

Somebody working all their life put their savings into funds managed by asset managers. In many occasions it is the pension authority themselves that has shaped a pension structure that has to face the issues of an eldering population and the life length and are investing huge assets into funds. Therefore the risk connected with those investments has to be very clear to the investor. The asset manager has clear legal expectations on how to asses a risk and how to communicate the risk for the investors.

 

The fund is often generated form an indication of the business development team that has the ears on the ground and can catch the requests and needs of the investors. Once the idea is shaped it is taken over by product development team that runs it throw financial test, legal requirements, compliance requirements, tax requirements, risk requirements. After the test are conducted and requirements met then the product is taken through several comities. Those comities have to approve the tests or send back for improvement. The competition is strong and majority of funds do will never be produced. Once the fund has been approved by all the committees, than it can be pre marketed. Pre marketing is following strict law requirements. Once the fund has the first investor than it is a proper product, but cannot be marketed unless registered to the local financial authority. The process described above takes usually one to two years, and the ratio of funds getting throw the process is very law.

 

As mentioned above asset under management (i.e. funds) are critical to the society well being. A financial crack can have disastrous consequences on the entire population. Think of the financial crisis in 2008. We were very close to a situation where ships were not able to sale or planes to fly, this would have happened if the biggest American insurance company would have been put in bankruptcy instead of being saved by the US government.  Therefore I would foresee even stronger requirement from the regulator to regulate the creation of funds. Hopefully that stricter requirement will also address the sustainability aspect of the funds which in my opinion is the biggest challenge that we are facing right now

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