Concentration concerns

Concentration risk could well become the next big thing in fund governance, particularly for investors. 15 asset managers now hold 56.7% of all externally managed assets. And just a few recently merged and now debt laden entities, products of the PE boom, service their funds. That is also a worry as the PE bubble has burst.

Such a large concentration of assets in the hands of a tiny number of mega managers and service providers has never happened in this industry before. It raises a number of governance issues and risk concerns which have not yet been addressed by the industry.

A handful of global names dominate in each of their respective investment sectors: mutual funds, private equity, hedge funds etc. As well as raising systemic risk concerns this lack of diversity cannot be good for the industry’s creativity. It is worth noting that when externally managed assets were run by a much wider and diverse variety of fund managers there was a lot more innovation in the industry. It is a very long time since any genuinely new investment product came along.

To read more on this story see the February edition of The NED.