SARACEN Fund Managers has highlighted the challenges regulatory changes have posed for smaller investment firms after posting a near five-fold increase in profits.
The latest accounts for Saracen show the Edinburgh-based investment boutique achieved £172,000 pre tax profit in the year to 31 March compared with £35,500 in the preceding year.
Turnover increased by around 40% to £1.1 million from £0.8m.
Writing in the accounts, directors said the company enjoyed a successful year with strong underlying performance for the funds it manages.
The directors noted the business is on a solid financial footing and the board continues to operate with a capital buffer that is significantly above the required level.
However, they highlighted the complications arising from the implementation of the European Commission’s Mifid II directive from 3 January.
The directive is intended to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors but experts have noted the complexity of the associated regulations.
Saracen also had to prepare for the introduction of the GDPR data protection regulation during the latest year.
“The burden of time taken on employees to implement these regulations is heavily felt by smaller firms,” said directors.
“This has also brought additional costs to new businesses and this is likely to restrict new entrants, which is surely bad for the markets and bad for competition.”
Saracen’s chief executive Graham Campbell has complained Mifid rules requiring fund managers to pay for research favoured larger companies, with bigger budgets.
The accounts highlight other pressures smaller firms face, amid a consolidation process in the sector in which some giants are combining to help achieve scale economies.
Standard Life and Aberdeen Asset Management agreed an £11bn merger last year, following a period in which both acquired smaller fund managers.
The Saracen directors wrote: “While TB Global Income and Growth has been able to steadily build assets, UK funds have remained small, despite outstanding investment performance.
“It is disappointing that many clients have less ability to back their judgement and are increasingly directed toward a small group of large funds.”
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