Obama Bank Proposal – Asset Managers could benefit

With the possibility that the Obama Bank proposal gets adopted and passed into law, “pure-play” asset managers could capitalize in a number of ways.

Until the 2008/2009 meltdown, banks were increasing becoming a one stop shop, playing very strongly in the asset management space. The value proposition of asset management, a hedge fund offering, private equity offering, capital markets business consolidated under a single shop was all very appealing. Now, the Obama proposal could enable “pure-play” asset managers to market their independence as well as create new product offering that may have not been possible before.

Independence = Opportunity

As described in the McKinsey&Company, Recovering From the Storm report, “pure play” asset managers, who are not owned by a financial institution, such as a bank or insurance company, have grown dramatically in size. This growth of concentrated “pure-plays” amounted to over 60% of the U.S. assets under management share. It would appear that one possible outcome of the pending Obama proposal would be that “pure-plays” pick up more assets as clients look to distance themselves from the concentrated, one stop shop banks and place their assets where there are no conflicts of interest and the core focus of the asset manager remains on client service, product development and wealth generation. Asset Managers would do well in the populist cultural environment of 2009/2010 to market their independence from the banks that are the target of Obama’s proposal.

Product Development = Opportunity

Secondarily, innovative asset managers could capitalize on the proposal by bring new products to market. In particular, a special opportunity fund, to which qualified institutions would invest, could position capital at the ready to buy any businesses that the banks are forced to spin-off. The potential spin-off of a hedge fund or private equity business could be quite synergistic within the asset management space, providing the cultural and organizational processes fit. This special opportunity fund could be marketed by an asset manager similar to the PPIP and TALF opportunity funds that were established by the likes of Blackrock, Wellington Asset Management and AllianceBernstein.

While there are sure to be modifications to the Obama Bank Proposal before it ever becomes law, there are sure to be some pleasant benefits for asset managers and right now, they could even capitalize now on one of the opportunities as described above.