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FCA Creates Program to Help Startups in Asset Management

The British financial regulator is encouraging fledgling fund firms after finding weak price competition in asset management.

  • Joe McGrath

The U.K.’s Financial Conduct Authority has created a program to help asset managers who are starting new businesses.

Fledgling fund firms in Britain can now access support from the regulator through a newly created asset management authorization hub, according to a statement Monday from the Financial Conduct Authority. The watchdog is offering startups meetings before they apply for authorization, dedicated case officers and online help.

The services may encourage new entrants and help young asset management firms flourish in an industry that the FCA found in its June Market Study report to have “weak” price competition.

“The asset management sector is important for the U.K. economy,” Megan Butler, the FCA’s executive director of supervision, said in Monday’s statement. “We want to aid new entrants to the market and the hub will help new firms understand us better as an organisation.”

The FCA, which aims to support firms throughout the startup cycle, authorized 300 new firms last year, according to its statement. That’s up from 150 in 2015, a spokeswoman for the regulator said.

Most consultants expect startups to establish a consistent performance record before offering their funds. So, while the initiative may attract new fund firms, it may be some time before competition is affected.

Patrick Connolly, a spokesman for investment consultant Chase de Vere, said the firm typically does not recommend products of new fund firms before they are able to demonstrate a three-year track record. The only exception would be when the lead portfolio manager is known to the industry.

The FCA’s Market Study in June found that “on average, both actively managed and passively managed funds did not outperform their own benchmarks after fees.” There’s since been a strategic shift at two major asset managers, which have outlined plans to revise their fee structures to better reflect fund performance.

In September, the Financial Times reported that Germany’s Allianz Global Investors launched mutual funds that would only charge investors if they beat their benchmarks. Then, earlier this month, Fidelity International said its actively managed funds would start charging fees tied to performance.

“Previously, asset managers have not competed on price, so if there is the potential for more competition, we would certainly welcome that,” Connolly said in an interview.