Ahead of FundForum International on June 12-14, Funds Europe asked leading industry figures about the issues likely to be discussed.
PAUL STILLABOWER, MANAGING DIRECTOR, GLOBAL HEAD OF CLIENT EXPERIENCE
RBC INVESTOR & TREASURY SERVICES
Funds Europe: What are the opportunities for the funds industry of big data?
Custody and asset servicing providers continue to make progress in developing big data and enhanced data management applications to provide fund managers with meaningful insights for their clients. Advances in data management capabilities will improve efficiency in leveraging information held and enhancements such as dynamic reporting, on-demand delivery, enhanced/predictive analytics and information dashboards are designed to align and support fund managers’ operational processes.
What impact do you expect of data analytics on customer segmentation and engagement?
For any data to be truly beneficial, it must be consumed in real time, be meaningful and easy to access and analyse. Within ‘big data’, enhanced and predictive data management applications are being developed by custody and asset servicing providers to provide fund managers with meaningful insights and data analytics capabilities for their own clients, which can only be beneficial for increasing understanding of buyer behaviours, aiding segmentation and increasing engagement.
MATTHEW DAVEY, HEAD OF BUSINESS SOLUTIONS
SOCIETE GENERALE SECURITIES SERVICES
Which topic will generate the most heated discussion this year at FundForum and why?
Asset managers are clearly looking at how to find growth and remain competitive and relevant in the coming years given new distribution challenges, changing demographics, the rise of passive and ETF strategies, regulatory constraints and greater digital integration.
Are you seeing an increase in alternative investment funds?
Although certainly less liquid than listed assets, we have seen a marked increase over the past few years into alternative investments and specifically in private equity and real estate. The tender recently launched by the European Commission for a market study of the Alternative Investment Fund Managers Directive may also encourage this development should it result in the adaptation of some of the rules initially laid out.
How prepared is the industry for MiFID II and is the timeframe workable?
Firms are at different stages in preparing for the challenges ahead and implementing the required changes for their business. At SGSS, we are seeing fund managers increasingly decide to outsource their market access and execution capabilities. However, much remains to be clarified in terms of the specific changes required, especially in the area of costs and charges.
MIKE O’BRIEN, EMEA CEO & GLOBAL CO-HEAD OF SOLUTIONS
JP MORGAN ASSET MANAGEMENT
With the Dutch and French elections behind us, what now for European investment and where do the opportunities lie?
European equities have surged since the French election results as reduced uncertainty about the future of the Eurozone has bolstered investor sentiment. So far this year, gains in European equities have outpaced all other major regions except emerging markets.
Even after what has been strong short-term performance, the sheer scale of European equities underperformance versus US equities since the financial crisis leaves plenty of scope for further relative upside.
What are the best strategies for solutions that will guarantee/secure investors’ income in their retirement?
Helping investors to secure retirement income is a major challenge as well as an opportunity for the asset management industry. It is clear that one size will not fit all and retirement solutions need to be accompanied with education, guidance and, where possible, advice to enable savers to make informed choices appropriate to their needs. Annuities offer savers guaranteed income for the rest of their lives and continue to be the best solution to mitigate longevity risk. However, annuity rates remain at historically low levels and on purchasing an annuity, savers lose access to their capital.
What is the biggest concern to the funds industry at present?
The reality is that the investment journey is only going to get more difficult and less rewarding in the coming years.
Research by JP Morgan Asset Management predicting likely market returns for major asset classes over the next ten to 15 years shows a clear pattern – average annualised returns to be expected from a basic balanced portfolio that is 60% equities/40% bonds have fallen steadily since the financial crisis, down to just 5.5% – from 8% in 2009.
STEPHANIE CLARKE, SENIOR VICE PRESIDENT, GLOBAL MARKET INTELLIGENCE
Can you give us a sneak peek of the talk you will be giving at FundForum on cross-border fund dynamics?
In 2007, in the heady days before the crisis, the global fund industry saw net annual inflows of €1.5 trillion, a sum yet to be equalled. But muted post-crisis net inflow numbers tell only half the story. In 2016, net inflows into the industry totalled just €0.6 trillion. And yet, if you sum all the funds that had positive flows, you get a number ten times that at €6 trillion.
With global fund assets totalling €34 trillion, this means that almost 20% of fund assets changed hands in 2016.
Investors may not be pumping considerable new sums of money into the hands of asset managers but they are increasingly making decisions as to where their money is put – whether they want to lower costs with index mutual funds and ETFs, devolve decision-making with the new wave of mixed asset funds or find an active manager with a credible story.
PETER DE PROFT, DIRECTOR GENERAL
EUROPEAN FUND AND ASSET MANAGEMENT ASSOCIATION
What issues do you hope will be addressed at FundForum 2017?
A key issue Efama is focusing on and is hoping to discuss with industry members, media and regulators while at FundForum, is the Pan European Personal Pension (PEPP) product.
We believe it is the solution to problems hindering the market for personal pensions functioning in Europe: high level of cost, limited product choice and lack of portability between member states.
A flexible but well-regulated, highly standardised PEPP would make personal pensions more attractive and contribute to the success of Europe’s capital markets union.
It would give people access to low-cost personal pensions and encourage them to re-allocate their savings towards more market-based instruments to get better returns.
Importantly, it would be a big step to reconcile the young generation of European savers with the European project.
We hope the Berlin Forum will provide us with the opportunity to reiterate our enthusiasm for this – and to further demonstrate the PEPP’s potential benefits.
PAOLO BRIGNARDELLO, HEAD OF PRODUCT MANAGEMENT AND MARKETING
What is the biggest concern for the funds industry at present?
The cost of investment products in a period of low investment returns is the main concern. Of course this is not a new challenge, but today regulators’ requirements of cost transparency give the opportunity to rethink products and models.
Know-your-client and anti-money laundering rules date back to the early 2000s, and implementation inefficiencies continue.
Similarly, the industry is still struggling to digest the post-2008 rules. A recent report by Deloitte highlighted how mutualisation could realise €1 billion cost savings in the cross-border fund distribution supply chain.
What is the future for the blockchain-based fund distribution model?
Don’t expect instant results, but distributed ledger technology can unlock savings and efficiency gains by streamlining fund distribution procedures. Success will depend on adapting regulations and creating industry standards as much as mastering the technology.
Luxembourg is Europe’s number one cross-border fund domicile thanks to its ecosystem of well-connected, first-rate service providers, intelligent regulation, and a supportive government. Blockchain can achieve its potential in this environment.
FIONA FRICK, CHIEF EXECUTIVE
What has been the attraction or what is the advantage of applying blockchain to one of Unigestion’s private equity funds?
We set ourselves three objectives. Firstly, to make operations more cost-efficient for our clients and investment partners.
Secondly, to create a more secure environment for stakeholders.
Finally, to free up time to work on new value-added tasks. We’re at the very beginning of what is possible with blockchain, and look to build on our experience.
What is top of your agenda when considering how technology is disrupting the funds industry?
Research has always been at the heart of what we do, and we see new technology as an opportunity to continue to evolve the way we invest. We are currently evaluating ‘big data’, and whether new sophisticated algorithms such as ‘auto deep encoding’ could replace the unsupervised predictive algorithms we have been using since 1995.
What is the practical business imperative of embracing a digital agenda?
Digital innovation is transforming the entire asset management value chain, from investment management to client interactions. All these aspects must be integrated in the digital agenda.
ALEX BIRKIN, WEALTH AND ASSET MANAGEMENT PARTNER
Which topic will generate the most heated discussion at FundForum 2017?
I think there are three subjects that will dominate. Key amongst them is whether alternative data, analytics and artificial intelligence will be the saviour of active management – a particularly interesting point given the investment some asset managers are making in this area.
Also ripe for discussion will be whether the continued rise of passive investments indicate the end of active management for retail clients.
Also, I suspect, many will be discussing whether ‘direct to customer’ is the new distribution model for asset managers. At EY we’ve heard many views on how this may develop and I know that my colleagues and I will be listening carefully to the mood music on this one.
What are the opportunities and challenges for the funds industry in embracing a digital agenda?
Digital distribution can help the industry engage new and existing client segments in a more effective way. The use of alternative data, big data analytics and machine learning to augment human portfolio managers could deliver better investment returns.
Additionally, digital operations, through robotics and distributed ledger technology will increase quality, control and efficiency, thereby reducing costs. All this said, it is universally acknowledged that integrating digital technology with legacy IT architectures is difficult.
Embracing digital requires a cultural shift as well as a technology replacement – which in itself is a massive undertaking for most firms and not something to be looked at lightly. Seeing how this develops amongst industry players will be fascinating.
NIGEL BIRCH, MANAGING DIRECTOR
When it comes to sub-advisory, what do leading distributors want from their asset managers?
Fund distributors face a series of growing challenges. Firstly on the investment side in the form of lower returns, pressurised fee-adjusted outcomes, and limits on internal capabilities to invest in non-traditional sources of return.
Secondly on the regulatory side with the rise of fiduciary standards, greater transparency requirements, and the abolition of retrocessions.
And finally from the changing business dynamic with the evolution of a next generation of clients and the digitalisation of distribution.
We are already seeing the response to these challenges in action. We see distributors either investing in larger, more specialised investment teams or partnering with asset management specialists in pursuit of better outcomes via the use of non-traditional asset classes and strategies.
We also see them consolidating the number of products and providers, which are now less incentivised by transaction fees, to lighten due diligence and governance burden.
At the same time they are tightening the customer journey, often via a digital experience, to build efficiencies and reduce idiosyncratic advice risk.
In summary, the institutionalisation of wholesale and the growing use of sub-advisory may mean that the winners in wholesale tomorrow look like the winners in institutional today.
©2017 funds europe