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Investment view

The chairman of Betelgeuse Investment Funds closed the door of his office behind him and wearily rested his back against the wall. So many meetings these days involved compliance and information technology, there was little wonder his head was spinning. The demand for new systems was keeping him on his toes and his finance director was constantly warning him about the consequences for bottom line.

As fund management groups poured more resources into management information systems and stock-screening processes, so he felt obliged to follow suit. Investors wanted to know how his team went about choosing stocks to put into their portfolios. Even the few stars he had managed to retain were far too busy presenting themselves to their eager public to spend time number-crunching at the coalface.

Fortunately, the public were still buying. True, the 2004 Isa season had hardly been the sale of the century but at least it had proved more rewarding than the previous year. If the problems of managing a fund business in the 21st Century appeared greater than ever, at least the opportunities were there, too. A more demanding public sought more sophisticated solutions. Property, guaranteed funds, structured products, hedge funds were in demand. Even the bond market was now an integral part of many portfolios. Most realised this had now become a seriously professional area in which to operate.

What would the future bring? The biggest wins had to be in better and cheaper dealing, settlement and ongoing administration. The development of fund supermarkets was transforming the investment map. The rise of the multi-manager – in particular, fund of funds operators – was also making a difference. You had to be on your toes these days if you were to persuade a well resourced investment house that your funds should be chosen to be part of an integrated portfolio.

With a sigh, the chairman sat heavily in his chair. Among the usual papers detailing profit and loss figures and fund sales was the latest report from IT tracking his managers&#39 dealing activity and their success – or otherwise – in beating the market. Did his managers do their job any better knowing that computers were tracking their every move? He doubted it.

Optimistic as he was, the chairman could not help but feel that the growing use of quantitative measures, the greater emphasis on risk management and the dominating influence of professional managers would drive areas of fund management into quasi-index tracking. No wonder boutiques were enjoying such a revival. It was ironic that success in this particular business limited your freedom to act.

But in a society where the culture of blame and compensation was growing, there were benefits attached to being part of a major organisation. Performance sold, of that there was no doubt, but demonstration of good controls and a wide range of investment options was just as important. To believe the public would take the risks associated with following smaller, nimbler operations was fanciful.

The chairman permitted himself a smile. Perhaps all this expenditure on IT was worthwhile after all. The Government had hardly been over-friendly to savings organisations but the reality was that people needed to put away money for the future and in the end they would be encouraged to do so. That is when all this expenditure would prove very worthwhile.

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