By Diana Rochet
A heightened regulatory environment will result in investment management companies incurring additional costs, industry observers say. And some might not be prepared to handle those costs.
According to Ben Phillips, managing director of Cerulli Associates in Boston, the best way to deal with new compliance would be to consider the separation of fund management and distribution. In a report titled "50 Ways to Ditch Your Dance Partner," he even goes so far as to raise the case for the sale of proprietary fund management operations.
Floyd Wittlin, a partner at law firm Bingham McCutchen LLP in New York, agreed that increased regulation might result in some companies considering exiting the fund management arena. "This is particularly true of certain financial services companies for which investment management is not their core business," he added.
For example, MetLife is widely rumored to be selling State Street Research & Management Co. to BlackRock Inc. because it is not considered the insurer's core business and had contributed only 1.5% to its parent company's earning for the first half of 2004. If indeed MetLife were to divest its fund management arm, the insurer could easily redeploy the sale proceeds into its core business — insurance. MetLife officials, however, declined to comment on the divestiture rumor, or whether increased compliance costs were a factor in the potential sale of the Boston-based firm.