July-August 2013

FUNDFORUM REPORT: Sir Bob’s Monaco gig

MonacoDelegates at FundForum International discussed variable pay, African investment and the ‘complacency’ of the asset management industry. George Mitton reports. Listening to the thunderous applause that followed Sir Bob Geldof’s passionate speech at FundForum International, when he extolled the virtues of investing in Africa, one almost forgot that the Boomtown Rats frontman and former Live Aid impresario began his talk with remarks that were less than complimentary to the industry. “These things that you do. Forty f ***ing years in rock and roll and you end up talking to money managers,” said the silver-haired rock star, having told the audience they must have been “bored stupid” by the proceedings thus far. The dismissive remarks didn't bother his listeners, who responded to his enthusiasm as he berated the world of finance for not investing more in Africa. He has a personal interest, having helped found a private equity vehicle called the 8 Miles Fund to invest in the continent. Geldof was outspoken about a number of other matters too, damning the banking industry for scandals, such as fixing the Libor rate. One can only guess at what the many senior and, one assumes, highly-paid executives in the audience made of his remark that it was “disgraceful” that US business chiefs typically earn 364 times the salary of the average worker. Pay was a subject on many lips at the conference, as fund managers discussed attempts by European politicians to impose limits on variable pay for fund managers. The bonus cap has since been left out of the draft Ucits V legislation, which will please those who resented legislators telling them how much they could pay their staff (the next contentious point could be draft rules that would allow investors to “claw back” the pay of managers whose funds lose money). Some argue the potential impact of a bonus cap was overstated. A few small hedge funds might conceivably relocate from Europe to Singapore to avoid falling under the regulation, but larger asset managers would almost certainly have adapted to the rules, or so says Charles Muller, partner at consultancy KPMG. Another regulatory matter is altogether more pressing than variable pay: the Alternative Investment Fund Managers Directive (AIFMD), which is supposed to be transposed into law by European governments by July 22. Who in the asset management industry is prepared for this? “No one,” says Muller, with an ironic smile. In fairness to fund managers, most European governments aren’t ready either, he says. “To date, only Germany and Holland have transposed the regulation. You can’t expect asset managers to be ready if the law isn’t there yet.” (Since the conference, the Luxembourg Parliament has also transposed the AIFMD into law.) Muller suggests the European Securities and Markets Authority will have to issue guidelines for those countries that don’t transpose the rules, and says the process of Europe adopting the directive could take years. One of the people leading the industry as it engages with the AIFMD is Christian Dargnat, the newly-appointed president of the European Fund and Asset Management Association. In his two-year term, he hopes to increase the association’s membership, promote investor education and present the view that asset management makes a contribution to the economy. Politicians have been looking for a scapegoat since the financial crisis, he says, but the funds industry should not take the blame, because it does not represent a systemic risk. “People want to punish finance, and they don’t make a distinction between banks, insurers, asset managers, etc,” he says. “We need to show them we are different. “We can cry, we can complain, or we can go to the regulators and explain,” he adds. Another fund association leader, Marc Saluzzi, of the Association of the Luxembourg Fund Industry, was at the conference, having recently been re-elected chairman. He denies Luxembourg is in a race with Ireland to become the premier hub for servicing alternative funds under the AIFMD. “There is more than enough work for Ireland and us,” he says. Saluzzi has some concerns about AIFMD, though. Alternative funds domiciled outside Europe which cater mainly to non-European investors may decide not to comply with the regulation, and European institutional investors may lose access to such funds as a result, he says. Volatile financial markets were also under discussion. In the few weeks before the conference, bond yields rose and equity prices fell as traders anticipated that the US Federal Reserve would begin to taper its bond purchases. Some investors worried that the end of artificial support would bring on another financial crisis. William Benz, head of Pimco Europe, Middle East and Africa, says such views are overly pessimistic. He still sees good prospects for fixed income, which is lucky for him because that is what his company is famous for managing. “What would cause a bear market in bonds? High growth and inflation. We don’t see that.” Meanwhile, other funds industry leaders were philosophical about the trauma investors have faced in the years since the 2008 crisis. “Investment management had about 30 years of virtually no change, until the financial crisis. That was such a stable period, it made people complacent,” says Jim McCaughan, chief executive, Principal Global Investors. Investors have drawn different conclusions from the troubled years since the Lehman Brothers collapse. Some have turned to passive investment to benefit from low fees, but Campbell Fleming, recently appointed chief executive at Threadneedle Investments, says stock-pickers have proved their worth. “The last five years should give everyone an understanding about why it’s important to have active management,” he says. What about the future? Robert Higginbotham, head of global institutional services, T Rowe Price, was among the most articulate speakers on the main conference stage over the course of the conference, and he had a few messages about the importance of distinguishing asset management from the banking sector, and so escaping the full force of the regulator’s hammer. “We cannot let up on the positives of our industry,” he says. “We have to get out in front of the bus on a couple of issues and take a few risks, but we can establish the message that we’re not the banks.” ©2013 funds europe

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