FundForum International, one of the biggest European asset management conferences of the year, gets underway in Berlin this week.
As delegates prepare for three days of high-level panel talks and seminars we asked a number of participants and visitors for their hot forum topics.
JB BECKETT, DIRECTOR OF THE ASSOCIATION OF PROFESSIONAL FUND INVESTORS AND AUTHOR OF #NEW FUND ORDER
Where are fund buyers going to find growth in coming years?
Technology. Not necessarily by simple virtue of holding Amazon or Facebook even if they have completely changed, the face of the S&P 500. No, at 200 times price-earnings then markets have priced in a multi-decade re-rating for Bezos. So that’s going to take time to realise, especially if you plug in today’s discount rate. Instead, ‘alternative risk premia’ is broadly banded about but my guess is that strategies, with a superior data process, hold advantage. These will mine, scrape and wash data to extract new patterns, arbitrage them, to find new sources of growth. That is still very hard to forecast but is broadly in line with my observations of Moore’s law. Also, strategies that can benefit from both rising and falling trend markets and micro trends imperceptible to long-only investors. Thus, what looks clearer is any normalisation of rates means the recent super-cycle, of issuance and cap-weighted index volume dictating multiple expansion, looks much less likely to deliver over the next cycle on valuation alone.
What do you expect to be the main topics of discussion at FundForum this year?
As I am proudly involved in curating and moderating content for the APFI in association with FundForum, then firstly I have some idea. I can tell you that we will have a lively mixture of fund buyer solutions, ‘too hot to handle’ debates, mixed with insights around ETFs, innovative fixed income strategies and the ever-pervasive digitalisation of fund management and selection. Transparency, sustainability and diversity won’t be far away. We have been building fund buyer content over recent years and this year looks set to take that ‘buyer focus’ even further. Hold on to your hats!
STEVE ROMICK, MANAGING PARTNER OF FPA AND FUND MANAGER OF THE NEDGROUP INVESTMENTS’ GLOBAL FLEXIBLE FUND
Is the US facing a recession or not?
The US economy is having one of the longest upswings in history post the World War (third-longest and soon to be second). However, it has also been one of the weakest economic recoveries, with accumulated gross domestic product growth the weakest it has ever been. We are experiencing a bit of a ‘Goldilocks’ type of environment: decent economy, low inflation and low interest rates. And yet, this cannot last forever. We don’t know the tipping point; maybe it’s a shrinking of central bank balance sheets, a pick-up in the unusually low velocity of the money supply, higher wages from a tight labour market, or maybe it’s something else entirely.
What’s next for the UK, Europe and the eurozone?
We don’t know how long this current economic state will continue. The question is not what the economy, interest rates or inflation will do as much as what is represented in stock prices. Stock prices at the moment are representing a good economy, low interest rates and benign inflation. If one or more of these variables disappoint, then the stock market will likely similarly disappoint. The bottom line is that something will break at some point – but what, and when, and to what extent we cannot say. So we don’t try to predict the likelihood of a recession or recovery. We try to understand what could happen. It’s our job to understand the market – to understand all of the possible scenarios and, against that backdrop, to respond to price.
DAVID PAGLIARO, HEAD OF STATE STREET GLOBAL EXCHANGE FOR EUROPE, MIDDLE EAST & AFRICA.
How can human decision making be improved around optimum trading, asset allocation and risk management?
We live in the information age and have increasingly easier access to systematically captured data across many subject areas. Data-driven decision-making across the board can be improved progressively through access to these new, alternative data-sets.
From a trading perspective, for example, the data that is being collected as a result of MiFID II reporting requirements makes available information on areas of the market that traditionally have been less transparent – such as reference data and trading volumes for fixed income and derivatives.
For asset allocations, this fundamental relates to investor preferences. Portfolio managers can incorporate both financial and non-financial metrics – for example ESG factors – as well as structured and unstructured data to assess risks, performance, costs and so forth to optimise asset allocation models.
Risk management, alternative data and network mapping have transformed how we use analytics, specifically descriptive, predictive and prescriptive. For example, descriptive analytics, which measure past performance, have been vastly improved by the ability to process years of data, and millions of data points.
Predictive analytics, which have become predominant over the last five years, have been improved by alternative data being incorporated into real time algorithmic trading models.
Does the asset management industry need a combination of artificial and human intelligence?
The benefits of artificial intelligence are clear. At the same time, human intelligence doesn’t go away for the very simple reason that intuition and instinct can’t be modelled.
It’s difficult to anticipate “Black Swan” events and it’s even harder to predict how markets will react. Therefore there will always be a need for asset managers to rely on their gut.
Artificial intelligence has been present in the capital markets ecosystem for many years now – think of low latency algorithmic trading. A few high-profile events have shown flaws in these early systems.
Regulators are keenly aware of this and have introduced regulations to address the risks. But they have all been reactive.
Artificial intelligence will inevitably mature over the next decade and the industry will evolve along with it.
BRYON LAKE, HEAD OF INTERNATIONAL ETFS AT JP MORGAN ASSET MANAGEMENT
What are the key challenges of capitalising on the growth of the European ETF market?
In the US, the success and adoption of active ETFs is not new. This is mainly due to the maturity of the market and the broadening needs from clients who have adopted ETFs as investment tools on all types of strategies. We think the Active ETF area of the European ETF market will grow significantly in the years to come. Like with any investment innovation, adoption takes time.
Generally speaking, we have observed that sophisticated investors across Europe are on the lookout for proven strategies that can provide diversification benefits in their portfolios. They also want to see innovation across a range of asset classes, although demand for greater innovation in fixed income is particularly noteworthy at this time, whether that be passive, smart beta and/or active capabilities.
What other topics are you looking forward to discussing at this year’s FundForum?
We are looking forward to discussing further how the ETF and asset management industry is evolving. At JP Morgan we continue to build out our suite of Ucits ETFs. Including innovative alternative strategies as well as some of our flagship active capabilities delivered through the ETF wrapper. We also think the fixed income area is growing at an even faster pace than the rest of the ETF market so are looking forward to discussing fixed income ETFs as the killer app!
ROLAND SCHMIDT, DIRECTOR OF EMEA BUSINESS DEVELOPMENT AT RBC GLOBAL ASSET MANAGEMENT
What will be the main challenges for German wholesale investors over the next couple of years?
Changing regulatory requirements will lead to profound changes and more complex reporting requirements for both selectors and fund managers. Alongside constraints on fund selection, these are two main challenges the market needs to address.
Increasing transparency will not only have an impact on the selection of investment vehicles but concern other aspects affecting the overall cost structure of wholesale selectors.
New standards and best practices will require a reorientation regarding product transparency and, consequently, deeper analysis of a fund’s structure will also become more prevalent.
Finally, the focus on ESG continues. Selectors will need to identify true ESG-investing managers and separate these from investment solutions that are primarily marketed as ESG-aware products.
What other hot topics are you looking forward to debating at FundForum 2018?
The drivers that make ESG continue to drift away from a popular theme for discussions towards becoming obligatory selection criteria – in that context, the approaches to understand how individual fund managers define ESG and implement their philosophy into portfolio construction.
The case for global equities and emerging market equities, in particular different style investing in the emerging markets in a post-QE scenario that is still marked by a low-yield interest rate environment.
Last but not least, the perception and trends associated with a MiFID-aftermath world – what are the new challenges and what are the considerations to meet these newly emerged standards?
©2018 funds europe
