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Magazine Issues » December 2022

A whole new world

worldWith so much going on in the world – wars, climate disasters, daily political dramas – it’s hard to focus on what truly matters.

It’s easy to blame the pace of disruption on the 24-hour news cycle and social media, but it seems like once-in-100-year events happen even more often now than when investment banks were collapsing during the global financial crisis (GFC).

A few years ago, I listened to a radio programme in which economics students were refusing to pay their tuition fees after the GFC, arguing their university lecturers were teaching theories that were at best out of date and at worst disproved.

Indeed, if economic practices were running as per any recognised model, inflation would have been at target for the past ten years, not spun into double digits (in the UK at least), and interest rates would be the lever we need to ensure stability.

If these models were either interpretable or workable, we also might not have overseen the largest uptick in food bank use in generations alongside the ballooning in numbers of billionaires.

As an arts graduate, I proffer that economics fits better in my sector than science – yet it has real-world impacts as it is used as the main theory with which we create portfolios and forecast both investment objectives and returns.

At a conference for large institutional investors in November, I was hosting a fireside chat with the treasurer of the World Bank. Whatever your thoughts about intranational institutions, they are free of many constraints holding back national and regional organisations. The treasurer explained how the bank was creating new types of bonds and funding instruments to help finance solutions for countries facing climate catastrophe, along with socioeconomic devastation. He also outlined how innovation was going to be crucial for our sector to even attempt to reach investment objectives in line with fiduciary duties.

Later that day, I hosted a prep call for an event discussing the potential of digital assets within capital raising. This was a technical debate on how market infrastructure desperately needs to evolve from the stock and bond markets created centuries ago. The fund manager on the call voiced his frustration at the pace of change within capital markets and how his part of the sector was looking to fintechs to make the strides the larger institutions were unable (or unwilling) to. He said that despite having access to some of the most forward-looking technology and brightest minds, finance remains stuck in the past, armed with yesterday’s tools to face tomorrow’s challenges. Back at the conference, an investor asked a panel of asset owners a question on the same theme. “How can you even think about constructing a portfolio to make long-term returns when the data you’re using is from a time that is over, and our future looks entirely different?” he asked.

Throughout the week, we’d heard about the huge uncertainty brought about by our changing environment, society, wealth distribution and a whole range of other factors. We’d also heard from the world’s largest and most sophisticated investors about how they were looking internally to meet these challenges and asking their partners in asset management and other investor services the same question … with varying degrees of success.

We urgently need to think about our soon-to-be reality and how we can invest in it. From demographics to consumer demand, life expectancy to living in the metaverse – whatever we thought the future would be like, it won’t be.

© 2022 funds europe