The Financial Services Specialists

The investment industry has seen major change in the last few years, not least with the ongoing economic and market challenges. This comes on top of significant product developments, including greater emphasis on the separation of products into alpha (market outperformance) and beta (market return) generating strategies. This has created a plethora of new(ish!) products, each fighting for "shelf space" and needing to justify their individual value. Hence, the recent emphasis amongst providers on liability driven investment (LDI), absolute return, and alternative investment products, to name but a few.

Whilst there have never been more products to choose from, many investors - institutional as well retail - remain poorly served in terms of their key investment needs. This can be seen as a failure of product providers as well as of distributors. The challenge for all is to demonstrate how these products can meet a defined client need and not just be seen as a way of generating a new revenue stream (or indeed protecting an existing revenue stream... ). This challenge lies firmly at the door of investment managers, advisors and other distributors.

Additionally, the market downturn of the last few years has shown that many manufacturers paid insufficient attention to diversifying revenue streams as a means of managing risk during the preceding period of strengthening market conditions. Style specific manufacturers have proven to be vulnerable to the downturn, as have those that simply followed the herd in product development without establishing their own USP.

In parallel to this, structural and counterparty failure - including a number of "near misses" -has opened eyes to the insufficiency of some current risk management approaches, not least in some parts of the derivatives market. In particular, many assumptions inherent in investment risk models have been found to be insufficiently robust, lacking scope and breadth in the risk factors addressed. The widespread use of invalid assumptions regarding ongoing market liquidity during this period is the obvious case in point. How the supply side responds to these challenges - with or without government prompting and / or intervention - will determine the ultimate impact upon the buy side and those investment managers that adopt derivative based strategies.

Meanwhile, individual investors in the retail and wealth spaces remain highly reliant upon advisors to manage their investment portfolios in order to meet their life objectives. Either that or they "manage" their portfolios themselves, often adopting the default lifestyle option(s) of their provider as the path of least resistance. At the higher end, asset allocation at the individual level remains king (although is not always effective), and investment engineering has paid little attention to the lessons from behavioural finance and outcome oriented products.

Where Bluerock Can Help
We believe that the current market creates the conditions and impetus for a new wave of change that can advance the cause of delivering better outcomes for investors while increasing shareholder value. We at Bluerock, through our depth of experience and thinking in this area, are ideally positioned to help businesses take both new steps and new directions in this journey.
Bluerock's services in the investment management space address many of the areas we believe should be at the top of the investment Executive's agenda:

• The development of successful and well targeted products is essential in a world of greater scrutiny. Our experience of leading proposition development initiatives, from innovation through to launch, is extensive across the institutional, wealth and retail spheres, dovetailing with our capabilities in market and distributor positioning. Bluerock has significant experience in helping our clients launch such diverse products such as LDI, absolute return, fund-of-fund, and hedge funds, either stand alone or within structured products.
• While product and proposition innovation is important, equally so, is maintenance of the existing product range. Our product portfolio management services complement proposition development, helping you to diversifying risk and balance revenues.

• As product innovation continues, the reliance upon derivatives is only expected to increase. Our work in building derivative ‘fluent' operating models for clients has provided for increased OTC trading capabilities and sophisticated cover and exposure management.

• Revenue protection is a necessary counterpart to cost reduction in the current climate. Bluerock's approach to scenario-based planning supports companies in developing operating strategies and models that will allow them to weather the storm. This in turn drives developments designed to stand up to varying conditions while allowing for opportunistic or tactical participation in macro, geographical, and sectoral developments.

• Regulatory evolution has created a raft of change within the investment sector. UCITS IV and RDR are but the latest, and are both areas where Bluerock can provide both regulatory and market insight on these developments, as well as the capability to change an organisation to take advantage of new opportunities arising, not just to be compliant.

For further details on any of the above, please contact either:

Bob Heath
Head of Asset Management
bob.heath@bluerock-consulting.com
or
Simon Pearce
Head of Wealth Management
simon.pearce@bluerock-consulting.com