Slash red tape for fund managers or risk ‘industry exodus’
The government must slash red tape preventing new fund managers from setting up or risk an industry exodus, experts have warned.
The rate of new fund management businesses being created has dropped precipitously in recent years as high barriers to entry have pushed too many entrepreneurs away from the industry, according to a report by Peel Hunt, Hill Dickinson and IIMI.
“The market has lost much of this energy as lowering fees, aversion to career risk and very large allocation requirements have eroded the viability of making investments into newer and smaller funds,” the report argues.
Just 32 fund management companies were authorised by the Financial Conduct Authority (FCA) in 2022, compared to more than 200 in 2016, despite a comparative rise in fund managers in other jurisdictions such as Luxembourg and the US.
“The reality is the harder you make it, the less likely it is that anyone’s going to bother,” said Charles Hall, head of research at Peel Hunt and co-author of the report.
“That’s the situation we’ve got ourselves into. Entrepreneurs in this industry say ‘the last thing I want to do is set up an asset management business’ because the hurdles they have to jump are so great.
“You’re regarded as someone who is likely to break all the rules rather than someone who will try and do things properly. That assumption needs to change.”
The report calls for the creation of a new regulatory framework which would accelerate the authorisation process, which currently takes months, while exempting smaller funds from much of the regulatory framework applicable to their larger competitors until their portfolio reaches the requisite size.
Growth agenda
The report on fund managers comes amid fresh government calls for the UK’s regulators to adopt a more pro-growth outlook which supports businesses’ development rather than constrain their activities.
FCA boss Nikhil Rathi has expressed his willingness to “collaborate” with the Treasury “in a fundamentally different way to support the growth mission”.
Dani Hristova, chief executive of financial regulation think tank IIMI, said the FCA has been “very keen to engage with us to understand, from a practitioner’s perspective, what the barriers and challenges are with the current regime and how it is posing challenges to the growth of these types of firms”.
“We haven’t had any signals from them they they’re not willing to engage with us on that front,” she added.