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Plenum 2013 – Financial Services Executive Search

The Changing ALM Landscape……

The ability of large insurers to call on an investment bank, mention a problem or challenge and enjoy as much high quality free ALM as they could “shake a stick at” may become a thing of the past. We have already seen banks steadily withdraw from providing such advice to pension funds. The “lumpy” nature of pension transactions meant that the ALM advisory teams were an awkward fit within organisations centered around clear and attributable P&L quarter in quarter out. http://www.theplenumgroup.com/uk-pension-business-too-lumpy-investment-banks Insurance ALM however, contributing to transactions that are comparatively less “lumpy”, has continued within banks. Although is this now also under threat?

The investment banking model is evolving and is now more focused than ever on flow business and transparent best-price execution, with less emphasis on advisory value added services. Many insurance ALM investment banking teams have seen headcount reductions. Those individuals that remain, feel increasingly vulnerable, being viewed as an expensive luxury. Whilst the work done by these teams may well result in large transactions, their specific and sometimes intangible contribution can be very hard to quantify. Especially when seasoned traders and sales people in the bank are ever keen to claim responsibility for any given deal.

So if the banks are withdrawing from this space – who will conduct the ALM? Arguably, market volatility, “the new normal” and regulatory change means insurers’ demand for ALM advice is greater than ever. The market appears to be evolving in a few different ways. Some insurers are opting to build in-house teams by hiring asset-savvy former bankers to sit within their ALM teams. Aviva, Pru and L&G are good examples here. Asset managers have also been building up in this space. GSAM, BlackRock, Schroders and LGIM spring to mind. However the issue here is that (in line with investment banks) the advice is not impartial. Redington Partners successfully demonstrated how there is a strong demand among pension clients for sell-side type ALM, but from an impartial provider. Such is the success of their work that many large consultancies have mimicked their approach, although asset-focused ALM for insurers remains relatively underdeveloped across consultancies. With the continued reluctance of the investment banks to provide this service, Plenum predicts that 2013-14 will see a continued shift of asset focused insurance ALM expertise from the sell-side, not only to the buy-side, but also to this growing part of the consultancy world.

TC Jefferson

tcjefferson@theplenumgroup.com

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