Ernst & Young Highlights Challenges and Opportunities for Mutual Funds in Midst of Volatile Markets

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Successful funds will be those that quickly adapt to strategic and operational changes in the evolving, transaction, governance, tax, and regulatory landscapes, says Ernst & Young.

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This is certainly not the easiest of times to compete, but firms that are able to grasp the trends at play in the industry will be better able to navigate the post-crisis landscape.

Beyond the challenges posed by a volatile securities market, mutual fund managers are contending with sea changes that are reshaping their firms and the industry as a whole, say leaders of Ernst & Young LLP’s Americas Asset Management practice.

“This is certainly not the easiest of times to compete, but firms that are able to grasp the trends at play in the industry will be better able to navigate the post-crisis landscape,” said Sue Cote, Ernst & Young’s Americas Asset Management Leader.

At its recent annual Mutual Fund Seminars in New York and Boston, Ernst & Young leaders identified several key developments that are creating both challenges and opportunities for fund managers in the current environment. The most notable include:

1.    Upswing in mergers and acquisitions (M&A).
M&A activity appears to have momentum. Faced with the prospect of new regulations that may restrict banks’ proprietary trading businesses, it appears likely that sell-side divestments may accelerate. Meanwhile, expected increases in the capital gains tax may even prompt privately held buy-side managers to sell their businesses.

2.    Evolving roles of officers and directors.
Investors and regulators now expect principal financial officers and board directors to enhance their focus on risk management and to question financial results and important business decisions such as product launches.

3. Significant tax, accounting and regulatory developments.
Over the past 12 months, numerous tax, accounting and regulatory proposals have been floated – many of which carry the potential to significantly impact the mutual fund industry. For example, the Securities and Exchange Commission recently announced it is examining the use of swaps and derivatives by mutual funds and ETFs – especially by actively managed and leveraged ETFs – and deferring exemptive relief requests for new ETFs that rely heavily on derivatives. This decision has slowed the pipeline for such products.

Watch video of Ernst & Young LLP partners discussing these three focus areas for mutual funds.

Ernst & Young is a leader in serving the global financial services marketplace
Nearly 35,000 Ernst & Young financial services professionals around the world provide integrated assurance, tax, transaction and advisory services to our asset management, banking, capital markets and insurance clients. In the Americas, Ernst & Young is the only public accounting organization with separate business units dedicated to the financial services marketplace. Created in 2000, the Americas Financial Services Office today includes more than 4,000 professionals at member firms in over 50 locations throughout the US, the Caribbean and Latin America.

Ernst & Young professionals in our financial services practices worldwide align with key global industry groups, including Ernst & Young's Global Asset Management Center, Global Banking & Capital Markets Center, Global Insurance Center and Global Private Equity Center, which act as hubs for sharing industry-focused knowledge on current and emerging trends and regulations in order to help our clients address key issues. Our practitioners span many disciplines and provide a well-rounded understanding of business issues and challenges, as well as integrated services to our clients.

With a global presence and industry-focused advice, Ernst & Young’s financial services professionals provide high-quality assurance, tax, transaction and advisory services, including operations, process improvement, risk and technology, to financial services companies worldwide.

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This news release has been issued by Ernst & Young LLP, a US client-serving member firm of Ernst & Young Global Limited.


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Katie Johnston
Ernst & Young
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