Presentation by NICSA President, Theresa Hamacher, at the RR Donnelly user conference in Boston on May 22, 2012

1. 5 Trends Shaping Today’s Fund Industry
Theresa Hamacher, CFA
President
NICSA
RR Donnelly FundSuite User Conference
May 22, 2012
1

2. Agenda
Alternative investments
Product regulation
Distribution
Emerging markets
Social media
2

3. Trend #1
The Great Convergence
3

4. The Wall Between Mutual Funds and Hedge
Funds. . .
4

5. . . . Has Been Breached
5

6. Mutual Funds Look More Like Hedge Funds
Janus Global
Putnam Absolute DWS Alternative
Market Neutral
Return 100 Fund Asset Allocation
Fund
ProFunds
UltraShort SPDR® Gold PowerShare DB
Emerging Markets Shares Double Long ETN
Index Fund
6

7. Alternative Funds are Growing. . .
7

8. . . . While Equity Funds Overall Are Struggling
8

9. Hedge Funds Will Look More Like Mutual
Funds. . .
JOBS Act of 2012
Jumpstart our Business Startups
Accept up to 2,000 Advertise to the
investors (vs. 500 now) general public
Still available only to “qualified purchasers” or
“accredited investors”
9

10. . . . Including in Their Level of Regulation. . .
Dodd- Hedge fund managers register as
Frank investment advisers
Adviser Subject to SEC rules on chief
compliance officer, codes of ethics,
registration record retention, advertising
SEC to establish rules for verifying
JOBS Act investor income, assets
10

11. . . . Which Changes Their Operating Model
Over 70% of hedge funds now have
at least 1 employee dedicated to
compliance, according to the latest
PwC survey
11

12. Trend #2
It’s a Complex /
Non-Complex World
12

13. Regulators are Prepared for Simple or
Complex. . .
Mutual funds Hedge funds
13

14. . . . But Not for the In Between
Mutual funds Hybrid Hedge funds
14

15. Reconsidering the Rules Here. . .
SEC Concept release on mutual fund use of derivatives
SEC Moratorium on new ETFs using derivatives and leverage
CFTC Expanded commodity pool operator registration
IRS Suspends private letter rulings on indirect commodity exposure
FINRA Sanctions for improper leveraged and inverse ETF sales
15

16. . . . And in Europe
UCITS NewCITS
Non-complex? Complex?
16

17. Trend #3
You Say “Products,”
And I Say “Solutions”
17

18. What Retirement Means to You and Me. . .
18

19. . . . And What It Means to the Financial Industry
Mutual funds
Life annuity
SEP IRA
401(k)
Roth 401(k)
SIMPLE IRA
Fixed annuity
403(b)
IRA Collective investment trust
457
Variable annuity
Defined benefit plan
19

20. The Investment Industry Provides Products. . .
Mutual Managed Investment
Annuities
funds accounts advisers
ICI MMI IRI IAA
Life insurance Hedge funds Collective trusts
Coalition for
ACLI MFA CTs
20

21. . . . While Financial Advisers Provide Solutions
Funds
Wrap account
Brokerage account
Unified management account
21

22. The Fund Industry Fights Back with Target
Dates. . .
High Yield TIPS
Bonds International
Emerging
Small Cap
Markets
Target
Large Cap Date Alternatives
Fund
22

23. . . . But Only in Retirement Plans
81% of investors owning
funds outside of a retirement
plan at work use a financial
adviser, according to the ICI
23

24. Rethinking the Role and Responsibilities of
Brokers
SEC Considering a fiduciary standard for brokers
Revising fiduciary rule applying to
DOL retirement plans
Considering negotiated commissions for
SEC funds as part of review of Rule 12b-1
Recommends that SEC review financial
GAO planner titles and designations
24

25. Europe Grapples with Similar Issues
RDR MiFID II PRIPS
Markets in
Packaged Retail
Retail Distribution Financial
Review Investment
Instruments
Products
Directives
UK EU EU
Entirely fee-based
Ban on
compensation; Establish uniform
“inducements” for
minimum rules for all
independent
qualifications for products
advisers
advisers
25

26. Trend #4
It’s Not All About China
26

27. If Every Person in China Bought Just One. . .
27

28. Percentage Growth is Stronger Elsewhere. . .
Two years ended 2010. Source: Investment Company Institute 28

29. . . . Off a Larger Base
Two years ended 2010. Source: Investment Company Institute 29

30. Blame it on Rio
Brevan Howard to open Brazil office
September 21, 2010
PIMCO to Open Brazil Office
April 18, 2012
The Principal Bets on Brazil with Acquisition
March 6, 2012
Credit Suisse seeks full control of Brazil unit
August 24, 2011
Fidelity appoints head for Brazil
“. . . first employee in Brazil”
June 21, 2011
Why Brazil May Be U.S. Managers’ Best Bet for Asset Growth
October 27, 2012
30

31. Trend #5
What’s in a Like?
31

32. Social Media in the Fund Industry
6 in 10
1 in 5
1 in 3
8 in 10
3 in 20
32

33. What’s in a Like?
Possible prohibited testimonial, per the
SEC Office of Compliance Inspections and
Examinations
An adoption, implying endorsement
FINRA
or approval
Commonwealth
of Need to be disclaimed
Massachusetts
33

34. Executives are Wary of Social Media
Gartner reports that 50%
of large organizations
blocked access
to social media in the
workplace in 2010.
34

35. . . . But Social Media is Essential to Many
Employees
11% of workers spend 30% or more of
their work day on social networking
activities, according to the 2012
National Business Ethics Survey
35

36. Summary
The great convergence
It’s a complex / non-complex world
You say “products,” and I say “solutions”
It’s not all about China
What’s in a Like?
36

37. Keep Up on the Trends Through NICSA
news.nicsa.org
@NICSAPres
NICSA LinkedIn group
Facebook: NICSAOnline
nicsa.org/knowledge
37