Palm Desert, Calif.—Driving down costs with more technological innovation and avoiding regulatory hurdles and losses through far more robust risk management are two of the key concerns of mutual fund boards today.
This is the insight from Elizabeth Krentzman, head of Deloitte’s mutual fund practice, as she sat down with Money Management Executive at the Investment Company Institute’s Tax and Accounting Conference here.
“Funds are facing tighter margins due to reductions in assets under management,” Krentzman said. “With the market bouncing around, few advisors are experiencing steady growth. That is making fund boards realize that they must become as efficient as possible. While many companies have certainly clamped down as the crisis hit, with staff layoffs and streamlined reorganizations, they now realize it may be time to see if their technology is ‘getting the most out of the machine. Large firms have embraced technological efficiencies, but since automation is not an SEC requirement, smaller firms may not have fully embraced it."
Newly appointed to head the audit, accounting and consulting firm’s mutual fund practice, Krentzman said she plans to invest a great deal of time with clients examining their technology.
"Technology has already been a vital part of the industry's success, but it needs to continue to embrace it to realize cost savings," she said.
But going beyond this function, as vital as technology is, in-depth risk management is also key, Krentzman said. “During the crisis, many asset managers found that their risk management systems may not have worked as well as they had hoped. Up until that time, risk management at asset managers was still very nascent.”
Krentzman continued: “Risk management is very different than compliance, which is ordained by one set of requirements. Risk management is much more organic. That eludes people.”
Deloitte can help clients establish a robust risk management system by providing a dashboard or a framework. But risk management must go far beyond that to address developing products, market trends, catastrophes such as the earthquake in Japan or the bankruptcy of Lehman, as well as unforeseen challenges such as the near paralysis of the capital markets in 2008.
True risk management “is not static,” Krentzman said.
Beyond this, Dodd-Frank is another key concern of fund board. Regulators might decide to include large money market funds or fund complexes within the framework of the Dodd-Frank financial reforms, should the government decide that they are systemically important. “We don’t know yet how this is going to play out, and some of our clients are concerned,” Krentzman said.
Other growing concerns of fund boards include examining the dynamics not just of underperforming but outperforming funds, alternative investments, exchange-traded funds and emerging markets opportunities.