Threat to fund managers from Silicon Valley giants has grown, says Unigestion chief

The threat that global technology giants will expand their tentacles into fund management as the use of technology within the industry rises has grown in the past twelve months, says the head of a boutique Swiss fund house.

"These companies are very good at developing front end applications which are a great client experience whereas in asset management we haven't been able to do that still," Fiona Frick, chief executive officer (CEO) of Unigestion, told CNBC at FundForum International in Berlin on Monday.

Yet, there is also an opportunity, she believes, depending on the direction from which the tech giants wish to approach the industry.

"Perhaps these companies will not manufacture products but they will distribute products and we could imagine a world where the big technology companies become the distributors," she posited before addressing the question of whether fund managers and Silicon Valley behemoths are already working together.

"I think there has been some discussion but it is early stage," said Frick, adding that many elements still remain unclear, such as whether technology players would wish to remain only in the passive management space or branch further afield into active fund management.

This threat to active managers comes alongside another source of passive management - namely, exchange-traded funds (ETFs) - continuing to grow at breakneck speed.

ETFs are investment funds that trade on stock exchanges and hold assets such as stocks, bonds or commodities, allowing broader and cheaper access to certain investments.

While the ETF industry recently topped $4 trillion, Jeff McCarthy, CEO of ETF at BNY Mellon, told CNBC also at FundForum on Monday that this is just the start of the market.

"Many forecast that by 2021, you'll see $6 to $8 trillion in these products. Specifically in Europe, I think we're poised for significant growth and kind of a break out from the $650 billion that we have in assets today," McCarthy declared.

"There is going to be more of a convergence between traditional active managers and ETFs. Part of that is the flow to ETFs…and part of that is the cost pressures that will continue to be put on active managers," he added.

Noting that the average expense ratio in Europe is now only 31 basis points, McCarthy highlighted the pressure on active managers to take proactive steps to address the challenge.

"I do see more active managers launching ETFs and I do see more acquisitions around the globe of active managers getting into the ETF space inorganically," he predicted.

McCarthy also sees a further step down in fees and expenses as inevitable.

"I think fees will continue to have pressure put on and you'll continue to see a trend towards downward expense ratios on investment vehicles."

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