A panel of experts from across the funds industry was asked to comment on the survey.
SHIV TANEJA, PRINCIPAL, MARKET METRICS
“For asset managers to expand products where they have a unique selling point or can offer true alpha is, no doubt, a worthy aspiration. But the solution is not to launch any more funds than we already have. Europe already has 33,000 mutual funds. We don’t need any more. I actually believe there needs to be a significant rationalising of mutual fund products across Europe. Just consider that the top 10-15 mutual fund sectors account for the vast majority of mutual fund flows; within that, the top five fund managers account for between 50%-80% of flows per sector, and within that, the top handful of funds account for the majority of flows!
Environmental, social and governance (ESG) is definitely the trend of the day, but the bulk of the assets and flows will continue to be institutional, and not in funds, and I don’t see that changing in the short to medium term. Also, the emphasis of this style of investing will be less about the positive or negative screens applied to stock-picking (as in the past) and more about the corporate and investment philosophy of the firm in question – again, a much more institutional investor requirement than for wholesale or retail.
On the question of consolidation, I do not believe that competition from low-cost passive funds is the only factor. Others include the macroeconomic environment we have had for the past decade, which has concentrated flows into a very small number of strategies (which tend to be income-generating and multi-asset or outcome-oriented). On top of this, there is the ‘tsunami’ of regulation which has raised costs and entry barriers.”
FIONA FRICK, CHIEF EXECUTIVE, UNIGESTION
“Investors face significant challenges. They need to generate sufficient returns to meet their needs in an environment of declining real yields, increased regulation and high valuations across equity markets. Furthermore, ageing populations and pension fund deficits are causing a noticeable shift in investor attitudes and priorities. At the heart of this is their desire for sustainable returns with less risk.
In our view, simple investment approaches that proved successful in recent years will no longer work, and more sophisticated solutions are needed to enable investors to navigate through increasingly complex financial markets.
A true understanding of risk is essential as we move into the next phase of the market cycle. Quantitative easing (QE) has significantly modified the risk profile of the traditional asset classes. A reversal of QE is therefore likely to cause another shift in risk/return expectations across these asset classes.”
IAN SIMM, CHIEF EXECUTIVE, IMPAX ASSET MANAGEMENT
“It has been clear for some time that investment managers need to change, in particular to provide a service offering that’s transparent and can be tailored to clients’ specific requirements. As an active manager running portfolios that diverge widely from generic indices, Impax endorses the view that clients value genuinely active management. We believe that, if they can deliver alpha over the longer term, smaller specialist managers and investment boutiques will grow and thrive.
Over the next five to ten years, it is likely that global savings will continue to rise, providing enormous opportunities for high-quality investment managers. With a longer-term mindset, however, the sector needs to be mindful of system-wide risks that are easily overlooked in backward-looking models, particularly climate change.
The ratification of the Paris Climate Agreement in late 2016 and the publication in 2017 of the recommendations from the Task Force on Climate-related Financial Disclosure have focused attention on climate risk and the opportunities for superior growth from investing in companies that provide solutions to environmental challenges. Reporting prepared in response to these recommendations should provide investors with a better understanding of the climate risks across their portfolios, facilitating better investment decision-making.
Furthermore, asset owners are increasingly being asked about the alignment of their investment strategies to the UN Sustainable Development Goals.
Investment managers who can implement effective plans to capture opportunities and manage risks over the long term, while also quantifying and reporting on a wide range of investment outcomes, have a rosy future.”
JON GRIFFIN, MANAGING DIRECTOR, JP MORGAN ASSET MANAGEMENT (EUROPE), LUXEMBOURG
“The survey reflects some of the pervasive trends and forces shaping our industry. Asset management will remain one of the fastest-growing and most important industries globally but will be characterised by competitive pressure, the continued rise of indexation and an increasingly complex regulatory landscape. Leading asset managers will need to demonstrate the proven ability to deliver long-term investment performance and operate with a fiduciary-driven, client mindset in order to succeed.”
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