Regulations Changes in Europe & Institutional Investors

Part
01
of four
Part
01

Institutional Investors

Out of the top 5 global institutional investors, only BNY Mellon has invested in crypto and digital assets. BNY Mellon Investment Management has invested a total of $5.06 million into digital assets. All the information has been entered in the attached spreadsheet.

Blackrock

  • Headquarters: New York, USA
  • Type of Investor: Hedge Fund
  • AUM in Cryto Assets: n/a
  • Notes on Crypto Assets: Blackrock has formed a group to study the cryptocurrency and blockchain markets. They are investigating if investment into those markets will be worth it for the company. So far, they still don't see their company offering cryptocurrency until they prove its legitimacy.
  • AUM in Digital Assets: n/a
  • Notes on Digital Assets: Although Blackrock formed a team to conduct an investigation into cryptocurrencies, Blackrock's CEO said there is not enough demand from their clients to get digital assets.

Vanguard Asset Management

  • Headquarters: London, UK
  • Type of Investor: Hedge Fund
  • AUM in Crypto Assets: n/a
  • Notes on Crypto Assets: Vanguard is open and eager to learn more about the blockchain technology. However, the company is still hesitant to enter the cryptocurrency world because they believe that "if something’s too good to be true, it probably is".
  • AUM in Digital Assets: n/a
  • Notes on Digital Assets: Vanguard is already using a similar technology to blockchain but investing into cryptocurrency is still not a priority. Vanguard is still optimistic about the advancement in technology like bitcoins and its potential to grow to a formal digital business transaction system but the company is convinced that the opportunity still carries too many risks.

State Street Global Advisors

  • Headquarters: Massachusetts, USA
  • Type of Investor: Hedge Fund
  • AUM in Crypto Assets: n/a
  • Notes on Crypto Assets: The company is still in the process of weighing the pros and the cons for investing into cryptocurrency. However, they also want to be the first to offer digital currencies, like bitcoin, because of the growing demand from their clients.
  • AUM in digital Assets: n/a
  • Notes on Digital Assets: The company continues to innovate their services through various digital strategies. However, the market infrastructure, the lack of appropriate trading, and post-trading arrangements are some of the reasons that are stopping the company from investing in the digital currency market.

BNY Mellon Investment Management EMEA Limited

  • Headquarters: London, United Kingdom
  • Type of Investor: Hedge Fund
  • AUM in Crypto Assets: n/a
  • Notes on Crypto Assets: While BNY Mellon has been reported to invest in the cryptocurrency market, it is also still evaluating the potential of cryptocurrency to determine if future investments would be beneficial to the company. The company was one of the first companies that brought blockchain to the financial industry. BNY is also leading the creation of the Enterprise Ethereum Alliance.
  • AUM on Digital Assets: $5.06M

Capital Group

  • Headquarters: Los Angeles, USA
  • Type of Investor: Hedge Fund
  • AUM in Crypto Assets: n/a
  • Notes on Crypto Assets: The Capital Group is still trying to establish the benefits that cryptocurrency would bring to their business. As such, they are not yet ready to invest into the development of a new cryptocurrency technology.
  • AUM in Digital Assets: n/a
  • Notes on Digital Assets: Capital Group have reported that they were in the initial stages of their investigation into the potential of digital assets and the cryptocurrency market. Unfortunately, preliminary studies have shown that digital assets are progressing slowly because of the uncertainty created by the cryptocurrency market volatility, leaving an impression that the whole system is a fraud.

Research Strategy:

We began by going through each company's website to find information about their headquarters and the services they offer to clients. We also searched through Bloomberg and Crunchbase to understand the type of investors each company was.

Next, we checked each company's press release section to understand what their opinion is about cryptocurrency and digital assets. We were able to find that, from the top 5 investing companies, only BNY is investing into cryptocurrency but information about their crypto AUM assets was unavailable. The other companies were still hesitant to enter the digital business because of the market infrastructure. Since 4 of the companies were not investing and BNY has no detailed AUM crypto assets, we just detailed their thoughts about investing into cryptocurrency and digital innovation.

In order to find BNY's AUM, we went through websites like Reuters, Investopedia and Cointelegraph. Unfortunately, information on the AUM was not available. The only information that we could gather was some more insights into the company's plans for future investments into cryptocurrency.

We also consulted with BNY Mellon's annual reports but there was no specific breakdown that detailed the company's AUM in crypto assets. We were, however, able to find that the company was one of the first organizations to bring cryptocurrency into financial industry. Using Hoovers, Crunchbase, and trustnetoffshore.com we were able to find the company's AUM in digital assets.

As a last resort, we went through the company's SEC filings but information about BNY's AUM crypto assets was unavailable.


Part
02
of four
Part
02

Trends in Legal Fees Collected: Part 1

After conducting in-depth research using industry-related websites and industry statistic portals, details regarding the top five legal firms and their views on profit increase stemming from helping European asset management clients regarding regulatory changes were not available in the public domain. Nonetheless, we gathered valuable insights regarding regulatory changes in the European asset management space. We found that in the face of new asset management regulatory changes, firms, such as Fidelity, Legal & General Investment Management, Columbia Threadneedle Investments, and M&G are ramping up their European operations.

trends in luxembourg following regulatory changes

  • Specialized investment funds (SIF) and Reserved Alternate Investment Funds (RAIF) are high in demand. Consequently, asset managers, financial institutions, and insurance companies foresee making significant changes in their business models to meet this demand.

additional information

  • The European Securities and Markets Authority suggests that after regulatory changes, all UCIT funds should be automatically considered 'complex'. However, the Association of Investment Companies does not agree with the agency’s suggestion. If the agency’s recommendation is implemented, it could impact the retail distribution of investment trust and other closed-ended, listed investment company shares.
  • Private fund limited partnerships (PLFPs), which play a crucial role in asset management regulatory changes, will allow new and existing U.K. limited partnerships to be classified as private fund partnerships.
  • PLFPs also have a "white list" of changes that impact limited partnerships but maintain their limited liability, such as removing the need for limited partnerships to make capital contributions to the partnership, disapplication of certain statutory duties (like not competing with the partnership), and removal of other administrative requirements.
  • The asset management industry remains at risk from the unabated raft of EU and UK regulatory changes and the continued decline in profit margins partly coming from the greater competition due to cheaper providers and the high cost of complying with the new regulatory amendments.

Research Strategy

Using the list of the largest law firms in the world provided by Ranker, we researched about the top five companies using their respective websites and press releases. We searched for their respective profit margins coming from asset management regulation changes but found no useful information. Instead, we found information regarding Baker McKenzie’s global center in Tampa, Clifford Chance’s preparations for Brexit, and Lathan and Watkin’s Singapore office.
We decided to move to our next strategy, which was finding industry sites that focused on asset management regulation changes in Europe and their impact on law firms. We looked at industry media platforms, such as The Lawyer, KPMG, and Burges-Salmon. We read through articles, press releases, and looked at statistical graphs, however, we were unable to find relevant information. Most of the information looked at the asset management industry in general. A probable reason for not finding this information is that there is limited research on the topic, which has been published in the public domain.
Therefore, we decided to expand our scope by focusing on other top law firms who had published information regarding their profits in relation to asset management regulatory changes. We looked at sites such as McKinsey & Company and EFAMA but our search yielded no positive results. Therefore, we concluded that none of the top companies listed on Ranker had publicly discussed about profit margins in relation to asset management regulatory changes.

Part
03
of four
Part
03

Trends in Legal Fees Paid

An extensive search through public domain did not provide direct information on trends in the amount of money asset management companies in Europe that they are paying out in legal fees specifically tied to regulation changes. We have provided a list of helpful findings obtained through our research.

Since there is a general decrease in fees paid by the asset management companies in Europe due to the changes, it might be possible that the legal fees paid by these companies have also decreased from 2008 to 2018.
  • The regulation change started after the Great Financial Crisis from 2008 till 2009.
  • Asset management companies in Europe are experiencing a decline in fees because of lower investment due to the regulation changes.
  • Since the initial regulatory requirements for European asset management companies are a few, it's very profitable and experiences rapid growth.
  • Based on a recently published article in Banking Hub, February 2019, in Europe, "asset management is considered highly attractive as the (regulatory) capital requirements are negligible."
  • Currently, asset management is "one of the most profitable markets." This has a high operating margin of 37% while banking has only 34% and insurance has 4% margin. So, asset management has the highest profitability in the financial services industry.
  • Each year in Europe, the asset management industry is growing rapidly at a rate of stable 14% over the past half decade. However, there is a continuous increase in pressure on the "industry’s enviable profit levels."
  • Due to "weak investment performance and greater transparency" there is increased downward pressure on fees. Additionally, due to the "need to keep up with new regulations, the process of digital transformation and the increasing demands" of future clients, "upward pressure on costs" can be seen.


Research Strategy:

Our research team examined a lot of dedicated European databases, relevant publications, and reports. The focus of our research was on the expenses made by asset management companies in Europe in the legal sector that were affected due to the regulation changes. After an initial search for relevant articles, statistics sheets, report, records etc., we relied on comprehensive European data sites such as European Commission Statistics, ECB Statistical Data Warehouse, Statista, European Data Portal, and others. We looked for relevant statistics tables, records and reports on the expenses of the asset management industry in Europe from 2008 to 2018. Regardless of our efforts, there were almost no publicly available sources found related to any trends in the amount of money asset management companies in Europe that are paying out in legal fees specifically tied to regulation changes.

Next, our research team performed research on the effect the regulation changes held on the general expenses of asset management companies in Europe. A very little statistics exist on this, of which, most were not directly related to the subject matter. We shifted our strategy to the general expenses made by asset management companies in Europe with the intention of extracting the requested information. Only reports for specific companies were available and a very little was mentioned with regard to legal fees. We tried to search in selected countries in order to estimate the data for Europe but this strategy was also failed. We looked for IFA employed by asset management companies in European countries to estimate their income from the aforementioned companies.

Finally, we collected information about the effect of regulatory changes on asset management companies and the asset management industry in Europe. In the absence of a direct relevant detail, we have included information obtained through this search in our key findings. We were unable to ascertain the exact figures and percentages of the legal fees paid by the asset management companies in Europe for legal services that were tied to the regulation changes.

Part
04
of four
Part
04

Trends in Legal Fees Collected: Part 2

As part one of this project looked into evidence that firms Fidelity, Legal & General Investment Management, Columbia Threadneedle Investments, and M&G are talking (directly or indirectly) about an increase in their profits specifically stemming from helping asset management clients in regard to regulations changes, we looked into the next five top ranked firms as listed in the ranking provided in the research criteria. These firms are Freshfields Bruckhaus Deringer, Allen & Overy, Jones Day, Kirkland & Ellis, and Sidley Austin.

Freshfields Bruckhaus Deringer

  • Increased regulatory changes are named as one of the main factors of financial growth in Freshfields Bruckhaus Deringer's 2018 annual statement. The company quoted "recognizing the greater reach of regulators and giving clients access to our leading international expertise on complex regulatory work" as the second-largest factor that contributed to their 5% revenue growth in 2018.
  • Freshfields Bruckhaus Deringer's partner Thomas Janssens spoke at Financial Times' conference called "The Impact of EU Regulation on US Tech" which was focusing on how to deliver more revenue to legal firms by helping US firms deal with the increased regulations in the EU.
  • Freshfields Bruckhaus Deringer has a podcast titled "The Freshfields Podcast". In episode 10 of the podcast, the opportunities of increased EU regulations are discussed.

Allen & Overy

  • In an announcement about their business in Germany in 2018, Allen and Overy stated: "A strong regulatory practice in Germany is essential in order to meet the increasing demands of our clients for advisory services in the field of financial regulation. This is an area where we see significant further growth potential for our firm as financial institutions and corporates continue to grapple with the numerous regulatory developments that impact their businesses."
  • Allen and Overy published a study in 2017 that showed that their clients are facing increased regulatory challenges based on the scrutiny from European authorities. This is linked to the firm increasing their share of regulatory business.

Jones Day

  • In July 2018, Jones Day announced another partner joining their German business. In the statement, the firm's representative is quoted: "We assume that this growth will continue long-term since both the number and depth of regulations as well as the intensity of scrutiny by the regulatory authorities will continue to increase. Therefore, numerous clients have repeatedly expressed their desire for Jones Day to strengthen and expand these practice areas."
  • In 2017, Jones Day announced a significant increase in the firm's focus on regulatory changes in France due to "the growth of the financing needs from local businesses, combined with the increase of the European regulatory constraints over the French banks, leading the French authorities to relax the banking monopoly in order to facilitate access to the local business lending market in France for alternative funding providers."

Kirkland & Ellis

  • Financial Times reported that big US law firms such as Kirkland & Ellis are hiring big in the UK due to increased regulations that are happening as a result of the pending Brexit in Europe.
  • In 2016, Kirkland & Ellis went on a hiring spree in both Europe and the US. The hires were focused on bringing in lawyers and partners that can focus on working with global firms, specifically in Europe. In the statement, the firm is quoted explaining the hires as strong assets due to their "experience handling the most complex and wide-ranging litigation, regulatory and corporate governance issues that will be a tremendous asset to our Firm and to our clients facing complicated litigation and increasing compliance and regulatory obligations."

Sidley Austin

  • Sidley Austin's 2018 annual statement quotes increased regulatory challenges globally but specifically in Europe to be one of the main reason's of the firm's increased grossed revenue.
Sources
Sources

From Part 01
From Part 03
Quotes
  • "At the time, asset managers were still distracted by the economic turmoil and regulatory change that followed the Great Financial Crisis, which spanned 2008-2009."