A $257 Billion Asset Manager Has a MiFID Warning for Small Firms

(Bloomberg) -- The head of Nordea Asset Management says new rules targeting conflicts of interest in his industry are instead hurting smaller fund managers as they struggle to keep up.

Nils Bolmstrand, chief executive officer of Nordea Asset Management, a unit of Nordea Bank AB that oversees about $257 billion, says the rules may end up being a case of the medicine killing the patient.

Europe’s revised Markets in Financial Instruments Directive, which took effect at the beginning of this year, was designed to improve transparency and end conflicts of interest across the financial industry. MiFID II has already been criticized by some for seeming to erode incentives to provide adequate research for investors in smaller companies, given the new pricing requirements.

But Bolmstrand says he’s “more concerned about smaller competitors” in the asset management industry, and how MiFID II will affect them. The additional expense of having to pay for research that they once got for free could make life difficult for many, he said.

“I would be more worried about the fact that there could be asset managers who don’t have a sufficient size to build up the internal capabilities to do research and where it gets more costly for them now actually to be able to buy that expertise,” Bolmstrand said.

Scandinavia has seen rising wealth levels coincide with a growing number of asset managers. At the start of the new millennium, Sweden’s four big banks, including Nordea, controlled 85 percent of that country’s market. That’s since dropped to 59 percent, industry data shows. But the new rules might end up dramatically changing the region’s asset management landscape, with only the biggest surviving.

Pension funds and insurers are also cooling to the asset management industry, citing inflated fees.

Bolmstrand says Nordea Asset Management is big enough to weather the change. It has also largely been shielded from Nordea Bank AB’s plan to move ahead with 6,000 job cuts, two-thirds of which are full-time employees. The bank’s asset management unit has stood out for its efficiency, with a cost-to-income ratio of around 30 percent versus an industry average of around 55 percent.

“It’s been a growing division with a clearly lower-than-peers cost levels compared to other asset managers,” Bolmstrand said.

But “income is less resilient than it has been historically, and in that, it becomes a scale game to some extent,” he said.

Nordea Asset Management is trying to build a bigger presence by offering other managers’ products under its own label (now around 20 billion euros) and in some cases becoming a shareholder in the companies. In July, it bought a 40 percent stake in Madrague Capital Partners and may make more such deals, Bolmstrand said.

“Although we are by Nordic standards a very large asset manager, by global standards we are not,” he said. “In order to have the product breadth to be relevant to our distributors and our customers in all asset classes, sometimes we can’t build that competence and it’s easier to outsource.”

MiFID II makes having a full palate of products more critical, he said. Banks are whittling down the number of asset managers with which they do business to cut their costs, Bolmstrand said. Smaller asset managers may find merging their only option.

Still, “I think everyone in the Nordics is well served by a vibrant and well functioning asset management industry,” he said.

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