Magazine Issues » July-August 2014

FUND FORUM: Time to say goodbye to monaco for good?

MonacoFrom poker to self-driving cars, panellists at the funds industry's top European conference discussed all manner of topics. Perhaps one dominated all others, will the conference stay in its current location next year, or move? George Mitton reports.

The question on many delegates’ lips as they touched down in Nice airport and travelled to Monaco, location of the FundForum International conference, was, would this be the last time they made this journey?

The conference organisers had sent a survey round shortly before the event asking if delegates would approve of a change of location and giving suggestions of alternatives, such as Copenhagen and Amsterdam.

Some say a move away from Monaco, which has struggled to shake its reputation as a tax haven, would give the conference a cleaner image. 

Others say Monaco has many benefits, being a relatively small, self-contained place, which allows plenty of opportunities for networking after hours. Plus, it has nice weather, beaches, and you can moor your yacht near the conference centre...

On to the conference itself. As in previous years, the conference began with “summit day”. Funds Europe attended the distribution summit, sponsored by BlackRock, in which panels discussed the various changes to European distribution caused by regulation, such as the retail distribution review and the second Markets in Financial Instruments Directive. One consequence of these changes is that asset managers must adapt their distribution models more than ever to a different country’s regime. According to Shiv Taneja, head of research at Cerulli Associates, “the future looks less global and more regional than at any time in the past”.

Attendees at the distribution summit also considered challengers to the traditional distribution model, namely web-based platforms which often favour cheap passive funds over active ones. It was notable that one firm with a low-key presence at the conference, Vanguard, seemed to be mentioned almost more than any other. Perhaps, when you offer some of the lowest fees in the business, you’re hard to ignore.

The conference proper began on Tuesday with a panel of chief executives, who discussed the future of the asset management industry. The panellists were challenged to commit to long-term thinking that could help society overcome problems, such as climate change. Euan Munro, chief executive of Aviva Investors, says asset managers can do this by pushing up the cost of capital for badly behaved companies. However, Aberdeen Asset Management chief executive Martin Gilbert cautioned that asset managers cannot push for change alone. Their clients must commit to those same responsible investment strategies.

The panel also considered whether pay in asset management is aligned with long-term thinking and claimed that various structures to defer bonuses meant that it was. 

Gilbert pointed out that the real fortunes were not made by asset managers but by hedge funds, and joked that it was a bad career choice for all the panellists not to become hedge fund managers. It should be noted, though, that Gilbert is not short of a bob or two, having made more than £5 million (€6.3 million) in salary and bonuses last year.

Later that day, a different set of chief executives discussed regulation and shadow banking. Hendrik du Toit of Investec was concerned that regulators were on a futile quest to remove risk altogether. He argued that playgrounds should have hard floors, because if children fall and hurt themselves, they learn to be careful next time. 

And so with the financial markets. He added that perhaps the biggest cost of regulation is opportunity cost, and asked the audience to think of the products that have not been devised, built or launched because asset managers have had to spend so much time on compliance questions. Meanwhile, Guy Strapp of Eastspring Investments argued that the cost of regulation has not been problematic at his firm. Yes, he has hired risk people in large numbers, he says, but he has also offset the costs elsewhere. “You find other efficiencies,” he says.

As in previous years, some of the most interesting speakers were those brought in from outside the funds industry to share their unique perspectives on wider global issues.

Actor and entrepreneur Caspar Berry gave an energetic presentation on Wednesday morning about uncertainty, drawing on his history as a professional poker player. 

The rapid-fire talk took in academia, history and popular culture and referenced some remarkable studies, including psychologist Philip Tetlock’s survey which found that overall, self-proclaimed experts are no better at predicting the future than random guesses, though, surprisingly, experts who are less confident in their predictions are more likely to be right than more confident ones. 

It was an eye-opening session and little doubt some delegates who had slightly over done things on the first night of the conference benefitted from Berry’s stimulating delivery. 

Later on, those who stayed for the final day’s discussions were rewarded by the masterful Kenneth Cukier, data editor of The Economist, who explained the implications of that popular buzzword, “big data”. 

Why has Google, a search engine company, built the world’s first self-driving car, and not a manufacturer such as Honda? How will sensors placed inside car seats both prevent theft and alert drivers who have fallen asleep at the wheel? In each case, the answer is in the data.Other notable talks included Kathryn Koch, of Goldman Sachs, who explained why asset managers should increase the proportion of women on their staff, especially the proportion in investment positions rather than, say, administrative or marketing roles. She also called on more financial services firms to disclose data on the diversity of their workforce, or lack of it.

Elsewhere, distinguished economist Jin Liqun tried to answer one of the toughest questions facing investors who deal with China. 

Can the world’s most populous country build a social welfare system without stifling initiative or innovation? He also challenged the view that China is not a fully fledged market economy by asking, what economy in the world is free of market interference?

The conference provided a stimulating forum for debate and a pleasant place to meet friends and business contacts. Most of the people who spoke to Funds Europe say they hope the conference stays in Monaco for some years. A spokesperson says the conference organisers are exploring options but nothing has been decided yet.

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