Beyond the Credit Crisis: The Impact and Lessons Learnt for Investment Managers produced by KPMG International in cooperation with the Economist Intelligence Unit examines in detail how fund flows, returns and reputations of investment managers have been impacted by the credit crisis and the economic conditions of the past 12 months. It investigates how, in light of the challenges presented by the credit crisis, investment management firms are managing the increasing complexity of the instruments and strategies they adopt.

Executive summary:
Since the summer of 2007, banks have suffered significant losses as a result of one of the biggest crises ever to hit the financial services sector, the so-called credit crisis.

So far, banks have been the focus of attention as bearing the brunt of the credit crisis impact. But what of the fund management sector? This report asks how fund managers have been affected by the credit crisis – and what strategies they are adopting in response.

Some of the key findings within the report include:

Investors do not have the same enthusiasm for complex instruments as fund managers.
Increasing complexity defines the fund management industry today. This survey of fund management and investment professionals reveals that 57 percent of mainstream fund management firms use derivatives in their portfolios. The figure is even higher within large mainstream fund management firms: nearly one-third of those with assets of at least US$10billion use derivatives to a major extent. Even more fund managers (61 percent) now manage hedge fund strategies, which in many instances are complex. The survey also found that half of mainstream fund management firms manage private equity strategies, nearly half manage asset-backed securities and more than one-third manage collateralized debt obligations (CDOs). Fund managers still believe that with the exception of CDOs, all the above strategies and asset classes will rise over the next two years. On the other hand, 70 percent of the investors who answered the survey say that the credit crisis has reduced their appetite for complex products.

Trust in fund managers has fallen as a result of the credit crisis.
Fund management firms have suffered a degree of fallout from the credit crisis, although nothing nearly as severe as the banking sector. Well over half of mainstream fund managers say investment returns have fallen and about the same proportion report falling subscriptions. But the damage potentially goes further than short-term losses in funds: six out of ten respondents believe trust in fund managers has been eroded due to the effects of the credit crisis. ...

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Beyond the credit crisis: the impact and lessons learnt for investment managers was written in cooperation with the Economist Intelligence Unit and is based on their survey of 333 senior executives from across the global fund and investment management community, in March and April 2008.

Respondents were based in fund or investment management firms, institutional investors, private equity funds, hedge funds and real estate funds.

Acknowledgements:

This report, produced by KPMG International in cooperation with the Economist Intelligence Unit, examines in detail for the first time how the fund flows, returns and reputations of investment managers have been impacted by the credit crisis and the economic conditions of the past 12 months.

It aspires to go further than this though. It investigates how, in the light of the challenges presented by the credit crisis, fund management firms are managing the increasing complexity of the instruments they use and the strategies they adopt.

Our foremost thanks go to the 333 respondents from 57 countries who answered our online survey and the 16 executives who gave us their time for interviews.

We would also like to thank members of the editorial board and other colleagues around the world who have helped us in carrying out this research, in particular Shiana Saverimuttu, Freddie Hospedales and Mireille Voysest from KPMG in the UK and Phil Davis and James Watson from the Economist Intelligence Unit.

Wm David Seymour
Partner and Global Head of Investment Management
KPMG in the US
Tom Brown
Partner and European Head of Investment Management
KPMG in the UK
James Suglia
Chairman of KPMG’s
Global Alternatives Advisory Commitee
KPMG in the US

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