KPMG WAM Navigating COVID-19

COVID-19: Implications for
asset & wealth managers

KPMG’s perspectives on navigating the pandemic for the
short, medium and long-term for principal investors,
asset and wealth managers.
—
May 2020
COVID-19 created a sudden and unprecedented shock to both
investment portfolios & business operations
$2,500 $30,000
1 Sudden drop in AUM (and revenues)
• Capital markets value erosion
Investor redemptions
Canadian Mutual Funds and ETFs Fund Flows

•
$2,300 16,667 $20,000
Severe impact to capital raising, sales and

MSCI World Index (USD)
9,662 8,506 2 distribution
(in Millions of CAD)

$2,100 7,468 $10,000
6,237
Social distancing drastically reduced
3,689
4,611
•
channels of distribution
4,006 8,161
5,973
2,231 2,857 2,983
$1,900 $0 • Reduced in-person channels diminished
(14,095) productivity and ability to convert prospects
$1,700 ($10,000)
Mutual Funds (RHS)
3 Unprecedented disruption to operations
ETFs (RHS)
MSCI World Index (LHS)
(11,112) • Strain on operations and call volumes due to
$1,500 ($20,000) spike in redemptions
Nov Dec Jan Feb Mar Apr
2019 2020
• Reduced service quality and disruption as a
result of remote core and support functions
Source: KPMG Analysis, Capital IQ, IFIC
© 2020 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 2
Managing through the pandemic
and navigating a post-COVID world
Managing through the crisis and navigating a post-COVID world
Short-term Long-term
Reaction Resilience Recovery New Reality

Immediate response to the crisis Managing through uncertainty Identify opportunities Adopt a new world
Navigating financial markets

• Deal volumes contracted, but • Portfolio monitoring, crisis mgmt. • Many firms were quick to establish • How will the market sustain the
better-capitalized investors seek and risk management. will be key vehicles looking for investment global debt overhang?
distressed opportunities • Re-assessment of risk tolerance & opportunities created by the • What is the earnings impact of
• Need to tightly manage liquidity, appetite downturns lockdowns?
both at the management company • Liquidity analysis and stress-testing • Reevaluate the degree of • What is the impact on
level and for P/E portfolio companies diversification in light of performance globalization? More nationalistic
• Private assets need to be revalued • Continued investor demand for policies, supply chains, etc.
illiquid strategies impacting investment landscape
Managing the business

• Influx of investor inquiries and • Tech & Compliance Continuity • Transition planning for “getting back • Less physical footprint / new kind
redemptions, spike in call volumes focused on data security and to work” of workforce
• Continuation of operations confidentiality given remote work • Digital advice and distribution, • Digitally connected customer
challenged given virtual workforce (e.g. compliance obligations, oversight automation and self-service solutions to enable seamless client
& lock downs in offshore locations requirements for remote traders) becomes the norm interactions and support operations
• Need to quickly measure, monitor, • Managing federal support programs • Resilience of operations through • Accelerate automation to drive
and report on changes in risks and • Workforce mental health effective self-service, automation operational scale
controls to manage regulatory • Increased regulatory obligations in and location strategy with stronger • Effective management of
considerations reporting, communication, BCP focus compliance oversight obligations
documentation, and disclosures • Operating efficiency through op-ex.
Reduction

Immediate response to the crisis Managing Through Uncertainty Identify Opportunities Adopt a New World
Asset and Wealth Managers face a number of investing challenges…
1 Capital
• Overall market contraction and uncertainty in asset valuation; deal volumes depressed near term as participants wait and see
• Deals arranged prior to COVID-19 are being reconsidered and/or repriced
deployment & • Better-capitalized investors (esp. those with dry powder) actively searching for distress opportunities, but still being patient as
risk this play out over next 6-7 months
• Potential for overreaction and wholescale changes of investment strategy given short-term market performance
2 Liquidity and
• Need to thoroughly assess available capital and liquidity to manage resilience (e.g. ability to endure redemption shocks, etc.)
• Risk Management in terms of market, liquidity, counterparty risk in COVID-19 environment
capital
• Review government programs across jurisdictions to determine access to government support programs for private asset
management
investments
3 • Pressure to revalue private assets in light of public market reaction; recent transactions may not be an appropriate basis and
downside scenarios need to be rewritten
Valuation
• General concerns on the reliability of valuation
• Consider tax loss planning across portfolio
4 • Short-term liquidity and working capital challenges for portfolio companies / underlying investees
Alternative • Extreme focus on portfolio performance and meeting debt covenants
investments • 58% of LPs reported uptick in capital calls due to liquidity needs of underlying fund investments1
• Deteriorating credit quality and higher delinquencies in portfolio
1Source: Institutional Limited Partners Association (ILPA) – LP Perspectives on the Impact of COVID-19

…and operating challenges

• Continuation of core operational services challenged by additional activities related to market volatility, tolerance exceptions, etc.
5 Core
• Influx of investor inquiries given market turmoil – call / service centers experiencing capacity challenges related to redemptions
and general inquiries seeking advice and comfort
operation &
• Challenges to reforecast / predict sales activity and win new business
distribution
• Shared service / offshore centers are continually challenges by COVID-19 with lock downs taking place in regional hubs (India,
Philippines, Ireland, Eastern Europe), where workers are not equipped to work remotely (e.g. no laptops)
6 Technology, • Focus required on remote infrastructure cybersecurity and data confidentiality including offshore operations outside clean rooms
data security • Organizations that have not fully embraced cloud infrastructure is experiencing issues transitioning to remote work, with VPN and other
& privacy legacy technologies causing delays and slowing down response times
7 • Challenges compounded by remote workforce, staff shortages, office closures, and third-party vendor reliance/resilience
• Inability to meet face-to-face with prospects impacts ability to raise new assets (e.g. institutional sales that primarily rely on high
Virtual
touch, in person interactions / onsite due diligence)
workforce
• Challenges compounded by increased management and board reporting to keep senior management up to date
• Consider impact on tax residency of offshore entities due to remote workforce restrictions
8 • Increased regulatory obligations in reporting, documentation and disclosures

Tax, risk and • Fraud risk is expected to spike given actors taking advantage of stressed environments
regulatory • Supervisory and compliance implications when managing a remote ‘trading’ workforce (e.g., compliance and oversight obligations,
voice recording requirements, etc.)

Immediate Response to the Crisis Managing through uncertainty Identify Opportunities Adopt a New World
Concrete near-term actions need to be taken across each core area for investments…
1 Capital • Reevaluate the degree of diversification in light of performance

deployment • Portfolio monitoring, scenario modelling and contingency planning is critical to navigate through the volatile environment
& risk • Segmentation of the risk analysis, by portfolio companies (e.g. risk to employees, liquidity, financial, sector/geography)
2 Liquidity and
• Conduct liquidity analysis and stress-testing and engage with portfolio managers to reassess scenarios
capital
• Contingency measures such as NAV suspension, measures on capital calls/drawdowns
management
3 • Revaluate valuations framework to ensure proper valuation process in place

Valuation • Valuation reliability disclaimers – disclose in investors reporting of potential reduced accuracy the valuation
• Consider tax loss planning options
4 • Consider taking a holistic approach (at parent level) to evaluate potential options for government aids in key jurisdictions
• Daily check-ins with portfolio companies and investees (e.g. implement a red, green, and amber system to flag financial health)
Alternative • Private Equity – Engage with portfolio companies to conduct rapid performance improvement (RPI), short-term cash flows and
investments working capital management at companies in more dire situations (e.g. P/E managers are engaging KPMG to help)
• Real Estate – Conduct rapid credit assessments to evaluate investments more exposed to losses and reallocation for loan losses
• Credit – Active collaboration with counterparties to evaluate potential options

Immediate Response to the Crisis Managing through uncertainty Identify Opportunities Adopt a New World
…and operations
5 Core
•
•
Increased investor uncertainty may require shift of service model to higher-touch
Reassess spend and expenses to help manage profitability and therefore liquidity and capital; focus on cost optimization
operations • Mindful of reliance on 3rd parties and move from quarterly review to daily vigilance
& distribution • Revamp of client reporting to be more transparent and informationally rich given inability to meet face-to-face
• Need to quickly react to accelerated issues around operating efficiencies that are straining already-thin margins
6 Technology,
• Review of business continuity plan covering IT, cloud, VPN to support remote workers
data security
• Review cybersecurity risks, compliance and oversight obligations given virtual workforce
& privacy
7 • Monitor capacity challenges and redirecting resources from non-core activities

Virtual • Expedite innovation and new ways of working
workforce • Consider co-sourcing partners to manage costs fill in gaps from resource / technology limitations
• Revisit tax operating models for offshore entities to determine new maintenance requirements
8
• Increased co-ordination and engagement with regulators
Tax, risk and
• Update risk matrix taking into account COVID-19 specific risks
regulatory
• Prepare financial and board reporting with these considerations in mind (see KPMG Board Reporting Template)

Immediate Response to the Crisis Managing Through Uncertainty Identify opportunities Adopt a New World
Opportunities will be seen across the front, middle and back office as we head into recovery
Enterprise-wide
Digital advice & distribution Resilience & redundancy of Operating efficiency
• Accelerated pace of technological and behavioral change – impact
operations
previously reluctant segments goes digital Transformation to drive
• Accelerated channel shift to digital wealth, sales and marketing More resilient continuity operational scale and
planning enabled by reduce op-ex. (e.g. Corporate functions
• Hybrid-advice, intelligent agents, chat-bots and investor portals
• Traditionally high touch intuitional sales process will likely be re- automation, self-service and through STP & Smart
Finance HR IT
imagined (prospecting, orals, on-site due diligence visits, etc.) location strategy Workflow)
Legal & Enterprise
Internal Audit
Compliance Risk
Distribution Front office Middle office Back office Virtual workforce

Advice, Distribution & Client Investment Management Operations and Administration
Product Ctrl. • HR transformation – managing and
& Fund Acct.
Management supporting a virtual workforce
Client
Advisor / Portfolio Trading & Deal Investment Investment Risk & Perf. Data Fund
Onboarding Liability Mgmt.
Channels Management Execution Risk Operations Reporting Management Accounting
& Servicing Technology & Cybersecurity
• Decommission old technology and
move to the cloud to enable and
Capital markets & investing Outsourcing provider challenges Middle/back office empower remote workers
• Focus on investment opportunities • Reevaluate supervision and oversight processing, data and reporting
created by the downturn of outsourced service providers • Identify co-sourcing opportunities
to ensure business continuity Enterprise Risk
• Significant market opportunities for (OSPs) to ensure resilience
• Enhanced middle / back office • Opportunity to refine and improve
distressed and specialist managers • Continuity planning for stretch cases
processing and support enterprise risk management /
• Continued investor demand for (e.g. entire country goes on
• Need for faster processing, better business continuity plans
illiquid strategies lockdown, clean room challenges for data, more timely information,
• Leverage AI for insolvency models remote workers, etc.) and single source of truth

When the pandemic is over, what will be the “new normal”?
Individuals Organizations Governments

• Will we change how we value: • How will industry dynamics and competition • What will the long-term approach be to cover costs
– Our physical and mental health? change as industries recover? Who will be the of short-term policies?
– The time we spend with our family and friends? new winners and losers?
• Will citizens trust their government more or less
– How we earn, save and spend money?
• Will investment horizons be shorter or longer-term than pre-crisis levels?
• Will we be more united or divided than before? than before?
• Will citizens be more willing to cede rights so
• Will we be able to trust each otherto do the right • How will organizations utilize bailout funds and will government can effectively address future
thing? there be additional government and consumer outbreaks?
• What aspects of social distancing will become pressure on their future behavior?
• Will governments' role in promoting its
adopted long term? citizens well-being change?
Asset & wealth managers

• What is the future of the workforce? Less • How to better prioritize digital advice, • With significant debt overhang now facing all
physical footprint – what needs to be remote? products and solutions to enable seamless economies, are we entering an era of even lower
What are the implications on digitalization, client interactions? returns? Increased exposure to future shocks?
compliance risks, IT & cyber security?
• How do we accelerate automation and digital • What is the impact on globalization? More nationalistic
• How do we manage oversight in this new transformation to achieve even more lean and policies, supply chains, etc.? How will what impact the
environment? cost-effective operations? investment landscape?
• How do we enable customers with technology?
Short Term
Short-term Long Term
Long-term

Immediate Response to the Crisis Managing Through Uncertainty Identify Opportunities Adopt a New World
KPMG’s Connected Enterprise approach can help accelerate your digital transformation, positioning you for success.
5 Lenses 8 Capabilities Execution Strategy
Innovative
Maturity
Employees products and Diagnostic
Insight-driven services Experience-
strategies centricity
and actions by design
Market
dynamics
and digital
Customers
Front,
middle and
back office
Seamless
interactions
2x
Impact
Responsive
operations
Blueprints
signals
Aligned and Integrated

Digitally- partner and
Channel empowered Methods
and workforce enabled alliance
business technology ecosystem
partners architecture
Additional resources
Additional resources
• Conveying the myriad of shifting developments to the board constitutes a challenge in itself. To support you in
COVID-19 essential board bringing COVID-19-related information forward to key stakeholders in a presentable and convenient format, we
reporting template for have developed a template board report for asset managers.
asset managers • Click here to access
Valuation • To help with addressing valuation challenges for illiquid investments in light of COVID-19, KPMG’s Valuations team
considerations in light provide insights on current market volatility as well as highlight some key valuation considerations for Q1 for
of COVID-19 financial reporting purposes under US GAAP.
• Click here to access
• COVID-19 accelerated the pace of the digital movement. This accelerated channel shift to digital wealth, sales and
Realizing digital - Delivering marketing means that prioritizing digital will be the key to winning in a post-COVID world. Read more about how
wealth management in the industry leaders are increasing client engagement in the digital era of wealth management.
digital era • Click here to access
Refocus on the customer – • In the new reality post-COVID-19, face-to-face interactions will need to be reimagined. Discover how
How customer experience customer experience is shaping the future of wealth management, including key features of successful
is reshaping the future of wealth and asset management firms.
wealth management • Click here to access
KPMG U.S. asset • Portal features KPMG tax content addressing COVID-19 issues for asset management firms, including information
management tax COVID-19 on stimulus programs, as well as some non-tax content.
resource centre • Click here to access
KPMG COVID-19 priority services for asset & wealth managers
Operational & Customer focus & Deals / portfolio company Tax, risk &
technology resiliency business transformation performance improvement regulatory response
Operational response Operations Rapid performance improvement Risk assessments
• Agile / operating model repositioning • Global delivery model / location strategy • Rapid performance improvement • Operational risk mgmt. of remote workforce
for critical activities • Offshoring / outsourcing • Working capital management • 3rd party risk analysis
• Operational resilience review and • Business architecture & operating model • Cash flows forecasting • Fraud / AML surge
assessment of effectiveness in • Intelligent automation • Cost optimization / takeout Internal audit
alignment with regulatory expectations • Middle / cack office transformation • Accessing available business reliefs • Audit plan reprioritization
• COVID-19 troubled project advisory Customer & distribution Deals • Internal controls monitoring
• Digital distribution • Capital structure assessment Tax
• Managed services / staff augmentation
• Customer performance improvements (CX) • Portfolio rationalization • Co-sourcing opportunities to ensure
• Return to work planning
• Sales organization optimization • Bankruptcy & liquidity compliance and manage business continuity
Virtual workforce
Workforce management • Restructuring & divestiture • Re-evaluate tax policies and tax profiles for
• Contingency planning, resilience and each entity to determine tax planning
• Workforce models planning • Asset valuation
crisis management opportunities
• HR transformation • Impairment accounting
• Surveillance and monitoring of remote Technology transformation Regulatory compliance
Investment risk & scenario planning
traders • Cloud migration/strategy • Compliance monitoring and testing program
• Model risk assumptions
Technology, data & cybersecurity • Technology readiness re-design and execution
• Scenario modeling / planning • Compliance risk assessment for newly
• Cyber threat assistance Finance • Counterparty credit established relief initiatives
• Identity access • Government support program assistance • AI supported research – insolvency • Relief for filing requirements from select
• Valuation process review / operating model modelling regulators
• Data & reporting • Hedging strategies • Trade surveillance
• Finance transformation
Contact the Authors
Chris Farkas Chris Hough Karime Abdel-Hay
Partner, National Leader for Partner, Finance & Back Partner, Wealth Management Lead
Asset Management Office Lead Management Consulting
Management Consulting Management Consulting 416-877-0079
416-791-2091 647-293-3965 kabdelhay@kpmg.ca
chrisfarkas@kpmg.ca chrishough@kpmg.ca
Yasir Mallick Justin Tang Joseph Micallef

Director, Asset Management Senior Consultant, Wealth & Partner, Tax
Solutions Asset Management National Tax Leader,
Management Consulting Management Consulting Financial Services
416-476-2948 416-777-3388 416-777-8037
ymallick@kpmg.ca tangjustin@kpmg.ca jmicallef@kpmg.ca
home.kpmg/ca/COVID19
Disclaimer: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
KPMG in Canada - Asset Management leadership
Audit & Tax contacts
James Loewen Peter Hayes Joseph Micallef
Partner, Audit Partner, Audit Partner, Tax
National Director, Investment National Director, Alternative National Tax Leader,
Management and Funds Practice Investments Practice Financial Services
416-777-8427 416-777-3939 416-777-8037
jloewen@kpmg.ca phayes@kpmg.ca jmicallef@kpmg.ca
Disclaimer: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour
to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2020 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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COVID-19: Implications for

asset & wealth managers

Canadian Mutual Funds and ETFs Fund Flows

Severe impact to capital raising, sales and

9,662 8,506 2 distribution

(in Millions of CAD)

Reaction Resilience Recovery New Reality

Navigating financial markets

Managing the business

Reaction Resilience Recovery New Reality

Asset and Wealth Managers face a number of investing challenges…

Reaction Resilience Recovery New Reality

…and operating challenges

8 • Increased regulatory obligations in reporting, documentation and disclosures

Reaction Resilience Recovery New Reality

1 Capital • Reevaluate the degree of diversification in light of performance

3 • Revaluate valuations framework to ensure proper valuation process in place

Reaction Resilience Recovery New Reality

7 • Monitor capacity challenges and redirecting resources from non-core activities

Reaction Resilience Recovery New Reality

Distribution Front office Middle office Back office Virtual workforce

Reaction Resilience Recovery New Reality

When the pandemic is over, what will be the “new normal”?

Individuals Organizations Governments

Asset & wealth managers

• How do we enable customers with technology?

Reaction Resilience Recovery New Reality

5 Lenses 8 Capabilities Execution Strategy

Aligned and Integrated

Yasir Mallick Justin Tang Joseph Micallef

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