Investment barriers to entry Barriers to entry in the investment by gyvwpsjkko

VIEWS: 56 PAGES: 3

									Investment
barriers
to
entry



Barriers
to
entry
in
the
investment
industry
impact
on
fund
performance

Dr
Simon
Pearse,
CEO
of
Marriott
Asset
Management,
makes
an
observation
on
the

investment
industry



Barriers
to
entry
are
the
source
of
an
industry
or
business’s
pricing
power
‐
the

ability
to
raise
prices
without
losing
customers.
The
primary
driver
is
to
restrict

competition
in
a
market.
The
investment
industry,
like
any
other
industry,
has

created
and
maintained
“barriers
to
entry”.
These
are
apparent
in
many
forms;
some

beneficial
to
the
investor
and
others
potentially
not.





Regulation
requiring
licenses
and
levels
of
qualification
from
industry
participants

like
asset
managers
and
financial
advisors
is
clearly
in
the
best
interests
of
the

investor.
One
may
question,
however,
the
current
practice
of
largely
removing
front

end
fees
or
initial
charges
and
escalating
the
on‐going
service
fees
through

performance
based
fees
and
layering
of
structures.
The
effect
of
this
practice
is
to

link
profitability
exclusively
to
assets
under
management.

As
a
result,
it
is
very

difficult
for
a
new
player
to
enter
the
industry
as
the
break‐even
point
for
an
asset

manager

is
now
about
R1bn
and
for
a
financial
advisor
about
R100
million.

Aside

from
established
financial
advisors
who
have
in
recent
years
bundled
their
clients’

assets
up
in
a
fund
of
funds
structure
under
the
“white
labeling”
banner,
there
are

few
new
entrants
to
the
asset
management
industry.
It
is
also
interesting
to
note

how
few
young
financial
advisors
there
are
in
the
industry.

Gathering
100
clients
in

order
to
make
a
living
is
prohibitive.






Another
interesting
barrier
to
entry
seems
to
be
created
complexity.

Investment

management,
like
so
many
disciplines,
is
shrouded
in
complexity,
and
kept
that
way

for
so
many
expedient
reasons.
Consider
the
unnecessary
complexity
that
is
paraded

on
a
daily
basis
in
public
forums.
Even
more
so
is
the
observable
fact
that
so
many

people
pore
over
various
media
articles
seemingly
in
search
of
the
next

extraordinary
return
or
maybe
the
answer
to
that
interminable
anxiety;
“is
my

money
safe?”





There
are
now
more
than
900
unit
trusts
on
offer,
most
of
them
endeavouring
to

outperform
their
peers
in
order
to
attract
new
subscriptions.
This
process
is
largely

endorsed
by
industry
commentators
and
analysts
who
tend
to
promote
past
returns

as
the
best
indication
of
future
returns.
So
much
of
the
analysis
and
commentary

focuses
on
short‐term
returns.
In
many
instances,
this
has
a
direct
influence
on
fund

manager
behaviour.
The
result
is
pressure
on
fund
managers
to
take
unnecessary

risk
and
to
focus
on
short
term
success.
This
behavior
is
generally
not
beneficial
to

investors.




Of
interest,
“barriers
to
entry”
is
an
important
driver
when
selecting
investments.

The
most
reliable
income
streams
are
invariably
found
in
industries
that
have
high

barriers
to
entry
and
therefore
a
few
powerful
players.
Think
of
the
food
industry
in

South
Africa;
the
power
lies
with
a
handful
of
producers
and
retailers
who
ultimately

determine
the
price
farmers
receive
for
their
produce
and
the
price
we
pay
for
that

produce.
You
can
be
sure
that
an
investment
in
this
industry
will
serve
you
well
over

time.





When
considering
the
pharmaceutical,
energy,
alcohol,
tobacco,
financial,
insurance

and
telecommunication
industries,
you
will
generally
find
a
few
powerful
players

controlling
markets
and
pricing,
as
well
as
restricting
new
entrants.
As
a
result
they

are
generally
able
to
offer
investors
reliable
and
growing
dividends,
a
key

prerequisite
to
low
risk
security
selection.
British
American
Tobacco,
the
largest

company
listed
on
the
South
African
Stock
Exchange,
has
grown
its
dividends
every

year
for
the
past
decade,
unaffected
by
the
global
financial
crisis.
40%
of
its
market

is
China
and
the
ban
on
cigarette
advertising
gives
its
brands
absolute
protection

from
new
entrants.





Fund
performance
describes
the
fund
return
commensurate
with
a
level
of
risk
or

volatility
of
that
return.
It
is
important
to
note
that
the
investor’s
return
is
invariably

different
to
the
reported
fund
return.
This
usually
relates
to
fees
paid
by
the
investor

and
the
point
in
time
that
the
investment
was
made.
The
greater
and
more
layered

the
ongoing
fees,
the
greater
the
disparity
between
fund
and
investor
experience.

The
focus
on
historic
returns
and
the
implicit
extrapolation
of
these
returns
into
the

future
invariably
causes
the
investor
to
choose
a
point
in
time
that
is
less
than

appropriate,
again
creating
disparity
between
fund
and
investor
experience.





Barriers
to
entry
will
always
exist
and
can
have
a
positive
or
negative
impact
on
fund

performance
and
more
importantly,
the
investor
experience.

“Income
Focused

Investing”,
the
Marriott
investment
style,
is
the
driver
behind
investment
decisions,

both
locally
and
internationally.
The
search
for
reliable
and,
ideally,
growing
income

streams,
purchased
at
appropriate
prices
is
the
foundation
of
our
business.

This

approach
or
style,
we
find,
sits
comfortably
with
investors
and
tends
to
reduce
a

complex
world
of
terms
and
verbal
smokescreens
to
a
simple
and
intuitive
modus

operandi.





ENDS




This
release
has
been
circulated
on
behalf
of
Marriott
Asset
Management




For
more
information
contact:



Marriott
Asset
Management:

Bronwen
Barclay,
Head
of
Marketing
&
Distribution
on
telephone:
031
765
0736
or

083
797
9979

Simon
Pearse,
CEO,
031
765
0700



Shirley
Williams
Communications

Shirley
Williams
031
564
7700
or
083
303
1663

Gillian
Findlay
082
330
1477




About
Marriott
Asset
Management

Marriott:
Income
Focused
Investing
is
a
differentiated
asset
management
house
that

offers
niche
products,
predominantly
for
the
retired
investor.
The
tag‐line
“Income

Focused
Investing”
evolved
as
a
result
of
the
investment
philosophy
underpinning

Marriott
Asset
Management.




Marriott
Asset
Management
began
as
Russell
&
Marriott
in
Durban
in
1862,
making

it
one
of
the
oldest
financial
services
businesses
in
the
country.
The
company

currently
has
over
R8‐billion
in
assets
under
management,
and
offers
a
number
of

investment
products
including
local
and
international
collective
investment
schemes.

Marriott
Asset
Management
was
acquired
by
Old
Mutual
in
2005
and
now
forms

part
of
the
Old
Mutual
Investment
Group
SA
as
an
independent
boutique.





								
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