Barclays issues a risk warning
Hannan: ‘It is important to find a distributor that can get the product out to the market efficiently’
If implemented properly, OA can bring benefits to the organisations involved and best value for customer, but according to Marc Hannan, at Barclays Global Investors, there are some risks that need to be considered.
“In terms of risk we have to ask ourselves three questions: What sort of risk? How much risk? And, at what cost?” he said. According to him there are three types of risk that customers should care about: market risk, manager risk and execution risk, the latter being “the difference between a good idea and what you actually do in practice”.
Many investors fail to pick a wide range of asset classes and prefer to concentrate in just one or two, which is not a good strategy if you want to keep down market risk.
There is also a risk involved in picking up managers. “You should only use active management if you think you are very good at picking active managers, or if you think you are very lucky,” he said.
Taking all this into account and without forgetting that the ultimate objective of OA is to benefit all parties involved, including the end investors, it might be necessary to revisit who is doing what when it comes to establishing a relationship between a distributor and a manufacturer, and who is benefit the most.
“It is important to know who is doing the buying and selling. We usually think distributors buy products from manufacturers and then sell them to investors, or that manufacturers sell products to distributors. But we could also see it in a different way. We could think that what manufacturers are doing is buying market share from distributors,” he said.
What is clear is that the quality of the product and the ability of the distributor to sell is what keeps the sector moving. “For producers, it is important to find a distributor that can get the product out to the market efficiently. Someone who can get your product sold better, to more people, without doing damage to your price.”
Hannan: ‘It is important to find a distributor that can get the product out to the market efficiently’
