The Luxembourg funds industry association, Alfi, holds its spring conference on March 8-9. Funds Europe puts questions to some of those appearing, plus others who work in the local industry.
THOMAS SEALE, CHAIRMAN, LUXFLAG, AND CEO, EUROPEAN FUND ADMINISTRATION
What has Volkswagen taught us about the dangers of corporate ‘greenwashing’?
In the two weeks following the scandal, VW shares fell 39%. The scandal taught us that ESG [environmental, social, governance] considerations are an essential tool for portfolio managers to control risk. Moreover, it is important to separate the wheat from the chaff.
A cold, objective analysis of ESG processes in the investment selection process is important. It is true that for too long, many corporations have viewed ESG purely in a public relations context. VW shows that a true ESG approach is mission critical.
Is the VW saga a threat to the integrity of ESG funds and ESG ratings?
I think just the contrary: ESG will become integral to state-of-the-art investment processes. This is why our Luxflag ESG fund label is finding curry with investment managers and investors alike.
As it is based on an objective and rigorous evaluation of ESG criteria, investors can identify potentially attractive funds; in turn, investment managers can show that they pay more than lip service to using ESG as a way of managing risk.
DR MATTHIAS UMMENHOFER, FOUNDING PARTNER, MOJO CAPITAL
Are there many fintech firms within, or around, the funds industry that may be considered disruptors, and what gives them this quality?
The best ones ignore the status quo – that is, the established way to do business that has been invented many, many years ago. They know the business and are reinventing it the way it can and should be done in an internet- and mobile-all environment, employing and/or creating state-of-the-art technology and focusing on transparency and customer experience.
Is fintech in danger of becoming another dotcom bubble?
The major issue in the dotcom age was abundant liquidity largely managed by inexperienced investors paired with unfulfillable technology promises to invent and deliver new products and services.
Today, technology is not an issue, customer demand is established and digital literacy reaches ever-increasing levels. New generations and entire countries leapfrog outdated models.
The fintech revolution already started years ago with companies like Loyalty Pertners, Klarna, adyen, GoCardless, iZettle and Transferwise and there is more to it than the numerous fancy start-ups people see, of which, just as in any other domain, many will fall out. But the ones making it will change the way people and companies manage their money, how they invest and how they insure themselves. It’s here to stay!
MARTYN CUFF, CHIEF OPERATING OFFICER, ALLIANZ INFRASTRUCTURE TRANSFORMATION, ALLIANZ
How are millennials going to approach investing differently from the baby boomers?
Social, global and digital are three tectonic shifts reverberating around the business world; businesses come and go at increasing speed; the ‘now’ society dominates, driving consumption and debt; people are living longer; life is increasingly lived online… but does any of this really affect how people approach the topic of investing? Are millennials all that different to previous generations or is human nature timeless?
Is the glacial speed at which asset managers are adopting digital speeding up?
Can you name an industry that is not or will not be affected by the so-called Fourth Industrial Revolution? Is asset management one of them? Can you make a case not to worry about all the digitalisation going on around us? How to respond to those fintech companies that are looking to remove unnecessary friction in the asset management business and operating models? More importantly, how to respond to the demands of the new generation of clients?
NATHALIE DOGNIEZ, PARTNER, PWC LUXEMBOURG
What do you think the fund industry would like to hear as Esma chairman Steven Maijoor’s priorities for Esma 2016?
Anticipation of upcoming draft level II and level III measures to leave time for the industry to assess, plan and implement new requirements.
Consistency, because inconsistencies [make it difficult for the] industry that is required to implement and monitor compliance with inconsistent requirements.
Harmonisation of reporting: AIFMD reporting, for instance, aimed at providing Esma with consolidated data about the alternative investment funds industry. Lack of harmonisation, not only of the content of data but also the reporting mechanism and formats, is an operational challenge for managers operating across Europe.
‘Eltif’ vs ‘Raif’: Which is likely to be the most popular type of fund among asset managers?
Responding to this implies comparing the potential success of a Luxembourg vehicle, the Raif, with a European product, the Eltif. The Raif is a new vehicle that will look like a Sif [specialised investment fund] and offer the same flexibility. The main difference is the shorter time to market, as the Raif will not be subject to pre-authorisation by the CSSF. The tsunami of questions from all over the world since the project has been announced clearly demonstrates that the Raif will be a huge success. Eltif has not (yet) received such a warm welcome from the market – mainly due to the (mis)perception that eligible assets are very restricted.
DENISE VOSS, CHAIRMAN OF THE ASSOCIATION OF THE LUXEMBOURG FUNDS INDUSTRY
Do you think there is a gender bias in the funds industry?
I know many talented women in the funds industry and if one looks purely at numbers – women on boards, women in senior executive roles – it would be naive to come to a different conclusion regarding not only the funds, but many other industries. Focusing on what we can do, some countries have introduced quotas; however, personally I believe that we get better results when companies embed diversity in their organisations, such as through corporate diversity programmes. The best diversity programmes address the issue from the ground up, by developing and encouraging talented individuals from the start. Such programmes also mean diversity gets more visibility at the board level.
At Alfi, we have for many years sought to include women as speakers in our conferences and promotional events abroad. A number of Alfi working groups are chaired by women that have senior positions in our industry. Finally, as Alfi chairman, I’m very aware of my responsibility as a role model for other women in our industry – but more importantly to ensure that diversity gets the level of attention it needs and deserves.
PASCAL DENIS, PARTNER, KPMG, LUXEMBOURG
What are some of the points you shall make in the panel about how fintech may be disrupting the alternative investment business?
Fintech has been widely referred to in the financial press in recent years. However, not much has been said about its impact on alternative investing. At KPMG we strongly believe that fintech will be disrupting the alternative industry like any other segment of the financial services industry. We can observe that trend coming to life in our fintech hub, the KPMG Hub for Entrepreneurship.
Let’s take investments, for instance. Predictive analytic tools, leveraging Big Data and social media, provide new ways to identify investments for hedge funds and other alternatives managers. Almayx analytics and SESAMme are two examples of fintech in that space. One uses human brain-like predictive analytics on structured and unstructured data to support investment decisions, while the other provides trading indicators based on social media mining.
But fintech also changes the way funds can raise capital with crowdfunding or online marketplace platforms bringing substantial disintermediation to exiting players. RealtyMogul is an interesting example in the real estate sector.
Finally, one cannot avoid mentioning blockchain, the technology underlying Bitcoins. In a nutshell, it is a public record of transactions, [which allows users] to identify the owner of any asset in a couple of seconds and to support secured transfer of ownership. Applied to fund management, it could dramatically decrease the transaction costs related to distribution, settlement and custody, also for alternative investments.
So we clearly see profound long-term impacts while fintech’s disruption is already at work.
MICHAEL FERGUSON, PARTNER, ASSET MANAGEMENT LEADER, EY LUXEMBOURG
Luxembourg has made a great deal of the Raif. Why is this fund structure considered so important to the Grand Duchy?
The Raif, a newly created Luxembourg investment fund product which must be managed by an authorised alternative investment fund manager (AIFM) will: (1) reduce [the time it takes] to create and bring all types of alternative investment fund products to market, as the Raif itself does not go through any separate regulatory approval process, (2) have full access to the AIFM alternative investment fund passport for distribution, and (3) reduce costs in creating and setting up such investment fund products primarily due to point one above.
Which are perhaps the most difficult hurdles still to be faced on the road to implementing Ucits V?
There are a number of challenges, including agreeing and updating new service level agreements, the sensitive matter of reviewing and agreeing revised fee levels, changes to operations including collateral arrangements, changes to information and reporting platforms to enable the depositaries to manage their new strict liability and oversight responsibilities and related risks, the upgrading of depositary due diligence and oversight programmes, understanding and implementing the remuneration provisions and above all engaging with and informing non-EU stakeholders such as portfolio managers, counterparties, etc, what it all means in practice to them.
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