Magazine Issues » June 2019

FundForum International: What shall we talk about?

Nyhavn_Canal_CopenhagenAhead of FundForum International, we ask speakers and delegates about event topics such as distribution, digital, asset allocation and ESG. The conference runs from June 25-27 at the Bella Centre, Copenhagen, with special workshops on June 24.


IAN CRISPO, HEAD OF FUND SELECTION, DEUTSCHE BANK WEALTH MANAGEMENT

What are the main challenges for fund selectors this year?
Given the low rates, the elevated credit and equity markets and the late cycle environment we are in, our main challenge has been finding strategies and solutions that provide continued decent levels of attractive returns along with downside protection and diversification. We’ve recently been focusing on alternatives, structured credit, unconstrained fixed income, and lending-focused strategies such as direct lending, collateralised loan obligations, business development companies and derivative-based fixed-maturity products. Real asset strategies such as real estate and infrastructure have also been of interest in our less liquid allocations.

How can fund selectors optimise ‘client experience’?
Part of our role is ensuring that the funds we approve can be seamlessly integrated into client portfolios. We provide a clear and concise description in bullet-point format of each fund’s unique value proposition, its key benefits and how it fits in a portfolio context. In our experience, when this is accompanied with our chief investment office views, it goes a long way to improve our clients’ experience.

Of course, we also offer the necessary marketing documents to go with it, and train our sales force when required, for example, for more complex products.


BILL GOURLAY, GLOBAL HEAD OF INVESTMENT PRODUCT DEVELOPMENT, AON

What does the future hold for ESG investing?
We would expect to see a significant focus on ESG data, given that there are currently challenges around its definition, availability and timeliness. Research and ratings providers have an important role to play here, not least in how they respond to the pressure created as investors consider turning towards raw data. Aligned to this is a need for clearer standards and best practice, not least to remove the potential of greenwashing – which in turn does raise the likelihood of associated regulation. Fiduciary duty will also be impacted as ESG factors need to be incorporated into risk assessments and decision-making.

How are managers combining performance with making a positive impact?
Positive impact relies on investor objectives and materiality lining up with market opportunity to have the desired impact. However, for this impact to be quantifiably successful, the materiality needs to be defined around the ESG impact objective and being able to invest in it. The Green Finance Initiative continues to promote the greening of capital allocations and industries will evolve towards a more sustainable global economy, which will throw up opportunities and currently undervalued areas along ESG themes.


SHELLEY YANG, CEO AND FOUNDER OF INVESTAO

How do you think the investment landscape in China will change over the next few years?
One major economic driver is the continued opening of China’s financial markets. It signifies a more inclusive and diversified landscape for investors, especially when we consider the current social evolution themes such as digitalisation, healthcare industry reforms and pension reforms.

The ongoing transformation into a consumption-driven economy will also bring about opportunities in both private and public markets. As we see this economic shift, we can expect better performance from active investments compared to passive managers given the unique capital markets status.

What are the hot topics you look forward to discussing at this year’s FundForum?
We are very keen to discuss Asian investment managers’ views on ESG investing. One question we often hear is: ‘Does ESG investing truly bring an extra return, or does willingness to partake in good social citizenship come at a cost?’

We are also open to explore and identify the source of excess returns with better-developed standards of ESG practices. Will it be sustainable for the asset management industry? The insights from investors will reflect the latest developments of ESG investment.


SHAMI NISSAN, HEAD OF RESPONSIBLE INVESTING, ACTIS CAPITAL

How is impact investing measured effectively?
Measuring impact can be challenging given the absence of accepted standards. Nevertheless, there are some key aspects that should be common to all approaches. One of these tenets should be intentionality and therefore the commitment to articulate ex-ante the relevant impact metrics to be tracked during the investment period. Independent verification of the impact process and impact data is another pillar of a solid approach. At Actis, our impact measurement methodology draws from the Impact Management Project’s five dimensions of impact (What, Who, How Much, Contribution and Risk). Our framework produces an impact score and an impact multiple, enabling investors to measure how impactful an investment is as well as understanding the extent to which impact was increased during the ownership period.

How can impact investing make a difference?
Impact investing can make a material difference in terms of benefits to planet and society and that has always been the case. What is different now is that there is much more capital flowing to impact (more than $500 billion), and the majority of this capital is seeking a competitive, market rate of returns. If the investment community is able to deliver both competitive financial returns as well as meaningful and measurable impact, we will have the ability to truly scale impact investing. The difference that can be made then will be at a much greater quantum and can help us to really move the needle in terms of supporting progress towards the SDGs [sustainable development goals].


JUSTIN ONUEKWUSI, FUND MANAGER AND HEAD OF RETAIL MULTI-ASSETS, LEGAL & GENERAL INVESTMENT MANAGEMENT

Which asset classes do you think will stand out over the next few years?
We are positive on risk assets into the medium term as we believe the outlook for markets has improved. Legendary investor Warren Buffett was spot on when he said: “You only find out who is swimming naked when the tide goes out.” We believe the likelihood of these structural headwinds triggering a 2008-style credit crisis is partially dependent on the economic cycle. A crisis is more likely around a recession than it is mid-cycle. The ebbs and flows of the cycle therefore have ramifications on the long-term risks.

Over the medium term, we are therefore positive on equities for the following three reasons: (1) Given the short-term weakness in growth, the risk of the economy overheating has reduced, therefore the economic cycle could continue for longer than expected, possibly into 2020 and beyond; (2) There are some indicators that show that credit risks that can become systemic have stabilised for now; (3) China has provided a large stimulus package. If this continues as we expect, our conviction is that the Chinese economy will rebound in the months to come.

How are investors adapting to market volatility?
While the end of the cycle does not necessarily mean higher volatility, the reversal of quantitative easing does increase the chances the volatility seen in 2018 may persist. The problem here is investors have grown used to low volatility over the last decade so, even if volatility normalises, this increase will feel like a problem. With this in mind, investors are recognising they have a concentration conundrum in their equity investments.

Anyone investing in a global equity index benchmark will need to accept that more than half of their portfolio will be invested in US companies and their exposure to Apple, Microsoft, Google’s parent company Alphabet and Facebook would exceed their weight in France and Germany combined. And while this allocation may have carried investors in recent times largely unscathed, investors are now questioning how diversified their portfolios really are.

Global equity index investors that use market cap benchmarks are exposed to considerable stock-specific risk, a particularly relevant consideration if volatility picks up. Those that invest in global equity index funds are therefore looking to spread their risk across different regions more effectively.


MICHAEL GRUENER, HEAD OF RETAIL EMEA AT BLACKROCK

What role can technology play in the sector?
Over the last 18 months we have entered an ‘era of digitalisation’ and we believe ‘what can be digitalised, will be digitalised’ in the asset and wealth management industry over the next three to five years. This will impact every part of the value chain from front to back.

In our eyes, technology is the enabler for financial inclusion and will allow the industry to provide investment services to more people. This is critical. Countries across Europe are shifting responsibility for retirement from the state and the corporate to the individual, an individual that may not be equipped to deal with this shift. In order to deal with the increased demand and deliver investment services to more people, combining traditional methods, such as face-to-face advice with technology, is key.

What other key topics are you looking forward to discussing at this year’s FundForum?
I am looking forward to getting more insights as to how the world of technology and investments and data are going to come together over the next few years. With items like open banking now reality, the worlds of banking and investments become even closer and we are starting to see solutions that can act as a person’s true financial hub, a one-stop shop for an individual’s financial life.


GERARD WALSH, HEAD OF DEVELOPMENT, INSTITUTIONAL BROKERAGE, NORTHERN TRUST CAPITAL MARKETS

What trends do you think we’ll see in investment management throughout the rest of the year?
We’ve observed a great deal of momentum behind the front-office outsourcing trend. This is a result of various long and short-term catalysts, including regulation, changes to roles, responsibilities and risks via the UK’s Senior Manager Regime, transparency, fee pressure, and the hunt for yield and return, combined with increasing levels of automation and technology. There is also a growing focus on cost control. We also expect much more focus on applying artificial intelligence, automation and technology well, as distinct from simply applying technology. There will continue to be a shift towards engaging more deeply with eco-system partners as firms seek to deliver more cost-efficient relationships.

Which key topics are you looking forward to discussing at this year’s FundForum?
FundForum is always very useful for understanding the reality of issues that our clients are facing. I’m looking forward to hearing more about real-world applications of artificial intelligence and machine learning, and about how firms are adapting their strategies to face the next decade. I’m particularly interested in how and why organisations are making better, more effective use of data in their decision-making, especially as that relates to outsourcing and cost control.


MATT TAGLIANI, HEAD OF EMEA ETF PRODUCT AND SALES STRATEGY, INVESCO

Do you see the ETF landscape changing in the next few years? If so, how?
The ETF industry has evolved rapidly since its inception and the growth in assets shows that investors increasingly view ETFs as an essential component of their portfolios. Their appeal is anchored in their efficiency, transparency and low cost and these defining characteristics won’t change. At the same time, innovation is relentless, and ETFs now offer a wide range of core beta, smart beta and ‘satellite’ exposures, plus access tools to open up difficult-to-trade markets. The one constant in the ETF industry has been change, and we expect that to continue.

Do you favour active or passive ETFs, or does it depend on the situation?
Although most ETFs are passive, the long track records of several multi-billion-dollar active ETFs demonstrate the demand for these products. While the transparency required to support an efficient secondary market may not be appropriate to highly concentrated or illiquid active strategies, for many approaches it poses no problem. Whether any strategy – active or passive – can be efficiently implemented via an ETF can only be answered on a case-by-case basis based on an understanding of clients’ needs, the functioning of financial markets, regulatory requirements and a dose of common sense.


WILL MAYNE, SENIOR DIRECTOR, BROADRIDGE FINANCIAL SOLUTIONS

What key trends do you expect to see over the next couple of years?
If you take a look at the growth plans of most global asset managers, they have a strategy built upon a combination of four pillars: private markets, solutions, ESG and China. These four areas will continue to heavily influence our industry over the next couple of years.

Solutions remain poorly defined, but effectively, this is the asset management industry transitioning from a transactional product mindset to that of a service industry. An increasing focus on creating value for clients beyond the narrow definitions of an investment management agreement and by more closely aligning propositions to investor goals.

How can technology be further implemented in distribution techniques?
We believe that asset managers who place data at the heart of their distribution strategy will outperform those who don’t. This comes from excellent execution founded in effective segmentation and targeting the right opportunities. Which markets, with which products, to which clients, at what price?

Asset managers need to ration scarce resources by carefully targeting the customers that are willing to pay for the differentiation their products can offer. Or by prioritising the segments where their solutions can more cost-effectively meet clients’ needs versus their competitors.

Creating an unbiased, data-based approach for evaluating opportunity is especially critical in a climate where asset managers are being asked to do more with each client for less than ever before. 


SHERRY MADERA, GLOBAL HEAD, INDUSTRY AND GOVERNMENT AFFAIRS AT REFINITIV

Which emerging markets are showing promise for the future?
Asia’s emerging markets are particularly interesting now as China and India continue to open up their financial systems to the rest of the world. This allows ASEAN countries and others in the region to benefit as well. Another driver for emerging markets opportunity in the near future is the renewed focus on building sustainable and investable infrastructure, including the Belt & Road initiative. The focus from multilateral development banks and the IMF to mobilise private capital is a great opportunity to innovate in this space. This will put the spotlight on infrastructure as an asset class across multiple emerging markets.

What are the hot topics you’re looking forward to discussing?
As active managers search for new alpha, how can data connect different markets so funds can seek new opportunities? How do we turn the regulatory challenge into opportunity? MiFID II is the perfect example, there is so much new transparency data but most firms are struggling to find value in the data. What do we need to change to unlock that opportunity? Finally, how do we work together better to solve global challenges, like financial crime which has a huge impact on people’s lives?


EDWARD GLYN, MANAGING DIRECTOR AND HEAD OF GLOBAL MARKETS, CALASTONE

What are the hot topics you’re looking forward to discussing at this year’s FundForum International?
Calastone is now the world’s largest financial community leveraging DLT and so I’m really excited to discuss this new technology at FundForum. Client interaction has shown that our blockchain-based distributed market infrastructure will radically transform the entire funds world as we know it today and create enormous value for all participants. Fully digitising the whole funds ecosystem will secure a better future for all of us, our clients and the investors of the future.

How will the implementation of blockchain technology affect the asset management industry?
The funds industry still trails other financial services sectors, and the use of manual processes, outdated systems and technologies is commonplace. This has led to a higher cost of distribution, which ultimately impact the end investor. DLT has the power to address these issues by digitising trading activity, creating a fully mutualised marketplace for smoother distribution.


DIDIER KAYL, HEAD OF BUSINESS AND RELATIONSHIP DEVELOPMENT MANAGEMENT, FUNDSQUARE

How does the implementation of big data and data analytics change the landscape of investment fund distribution?
Value creation in investment fund digital distribution depends on data quality. Fund actors will need to focus on this because it is the initial building block. Big data analytical methods will be used to ensure data quality before it enters the distribution chain.

All fund actors handle increasing amounts of data and information but most see this growth through regulatory or compliance eyes. From a digital sales standpoint, data analytics, with other methods and tools, will enable fund companies to use quality data to make decisions, including strategic ones, possibly in real time.

This change is happening now. The distribution chain is being flattened, with fund buyers closer and more visible to fund producers, and is becoming more efficient, with accelerating process and operational automation.

What trends do you expect to see regarding big data and data quality within the industry in the coming years?
Holistic information management, an iterative process between data producers and data consumers, including feedback, holds great promise. Exploiting data lakes, which can help solve the issue of diversely structured repositories, will be more common.

New skills will be required. Data experts and those who combine expert understanding of the fund distribution chain with analytical mindsets will be in demand.

As in other sectors, digital points of sales will become ubiquitous. Responding intelligently to this trend will complete the digital transformation of the fund distribution ecosystem.


LAURA BAILEY, FOUNDER OF QADRE

How do you expect digitalisation and blockchain technology to affect the asset management industry?
The financial services industry has been built on technology, which today is at best dated and at worst, archaic. In addition, regulatory and operational changes have culminated in a plethora of patches to fix problems, without addressing the core architectural structure, resulting in duplicative, inefficient processes.

Blockchain technology allows us to take a step back and design processes from scratch using a blank sheet of paper. Through redesigning how investors are on-boarded by asset managers, how corporate actions are undertaken and how, through a reduction in the operational cost base on transacting, we have the potential to unlock products, markets and demographics, once thought to be cost-prohibitive.

If we are to be successful in creating a more efficient, transparent and cost-effective asset management industry, it will require an openness and willingness to explore new ways of doing things – a fresh approach. Out with the old and in with the new. The world has awoken to the benefits that new technologies, such as blockchain, bring. There will be an increasing focus from many stakeholders about how best it can be utilised and best adopted. Those who resist change are expected to find their market position weakened in the future, or perhaps even obsolete.

What is one of the main challenges faced by fund managers over the next couple of years?
Open banking. As open banking progresses into the asset management field (‘open asset management’), non-traditional players are highly likely to enter this space and provide competition, enabled through lower barriers to entry.


HORTENSE BIOY, DIRECTOR OF PASSIVE STRATEGIES AND SUSTAINABILITY RESEARCH, MORNINGSTAR

Do you see more passive funds and zero fees as a move in a positive direction?
The downward pressure on fees is good news for investors. However, I am not sure investors need zero-fee products. They raise suspicion. There is no such thing as a free lunch, everyone knows that. One might ask how the firm makes money if it doesn’t charge a management fee.

Having said that, I have no doubt that we will soon see a zero-fee product launch in Europe, like Fidelity’s in the US.

With respect to ETF proliferation, there are no signs of it abating. Surprisingly, plain vanilla equity ETFs continue to hit the shelves, which isn’t necessarily a move in the right direction as it results in further market fragmentation. Investors don’t need another Euro Stoxx 50 ETF or another MSCI World ETF.

Fortunately, ETF providers are also looking to innovate and offer new strategies. For example, ESG has become a key battleground. And it’s an area where we’re seeing increased fee competition.

Which do you think are the most important themes at this year’s FundForum?
ESG is of course one of the most important themes of this year’s conference. There are two ongoing trends.

First, ESG integration is becoming the new normal. An increasing number of portfolio managers are integrating ESG factors into their investment process to mitigate risk and/or add alpha. They’re also becoming more active owners by engaging with portfolio companies.

The second trend is product proliferation. Asset managers are launching new ESG-focused funds to respond to the growing demand from socially conscious investors. Assets in ESG products are growing.

Nevertheless, there is a lot of confusion around the various ESG approaches, and accusations of greenwashing are rife. That’s because ESG investing is still a relatively new space. Hopefully with regulation and investor education, these issues will disappear. What matters is that the industry is moving in the right direction, focusing on environmental and social issues that were not getting much attention before. The more assets invested in this space, the better, even if these assets reflect differing degrees of commitment.


ALED JONES, HEAD OF SUSTAINABLE INVESTING EUROPE, LONDON STOCK EXCHANGE GROUP

What opportunities are there for index providers in ESG investing?
The opportunities in sustainable investment are huge.  Global assets under management has reached approximately $30 trillion and interest is growing across the investor spectrum, from the institutional market, to wealth management and retail investors.  We are seeing this in conversations with clients who are looking to incorporate ESG themes and issues into the design of equity, fixed income and real-estate indices.

What can governments do to promote green finance?
The main role of governments in this area is to set market and best practice standards. We support the formation of clear global standards of reporting, including ESG, to reduce regional and country divergence, ensure consistency of data and reduce  additional reporting burdens for global issuers. Such global standards can provide national regulators with important guidance and help harmonise rules across borders.

On broader allocations by investors to green assets, more needs to be done to de-risk the process, not just by helping to provide first loss capital on green projects but working on the misconceptions of what green investing means.


MATHIEU MAURIER, COUNTRY HEAD SGSS, SOCIÉTÉ GÉNÉRALE LUXEMBOURG

What future trends do you expect to see in the industry?
With emergence of new technologies and new customer's expectations, we are currently facing a huge transformation of financial industry, including back-office functions. The next generation of tools, based on Artificial Intelligence, will extract more value from the data, providing investors and asset managers with predictive models and functions, such as Natural Language Generation. Lastly, we should afford to adapt our value chains to integrate Blockchain solutions as far as they are covered by regulations and a good level of reliability.


JACKIE BOYLAN, HEAD OF UK ADVISER PLATFORM, FIDELITY INTERNATIONAL

What does the future hold for financial advice?
There aren’t too many industries where demand outstrips supply as much as it does in financial advice. One of the unintended consequences of RDR was the reduction in advice professionals in the market, and whilst we are now seeing adviser numbers growing there is still a very large advice gap. Of course the challenge is, how can advisers offer relevant advice at a reasonable price? I strongly believe that the solution does lie with technology, and it does lie with a hybrid of guidance, automation and good old fashioned human contact. The other big challenge is capturing the massive transfer of wealth that will be coming over the next ten-fifteen years as the baby boomers pass on assets and wealth to their children and grandchildren. Recent research suggests that the generations inheriting this wealth are highly unlikely to keep this money with the current financial adviser.

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