Our panel of experts at Funds Europe’s London roundtable – held online on October 27 – look at how the asset management industry is adapting to life after Covid-19 as the world struggles to come to terms with the pandemic.
Pascal Duval (head of retail solutions, Amundi)
Darren Pilbeam (head of UK retail sales, Natixis)
Nigel Smith (managing director, UK client group, Ninety One)
Robin Creswell (managing principal, Payden & Rygel)
Julian Ide (head of Emea distribution, Franklin Templeton)
Eugenio Cicconetti (head of global financial client group, Schroders)
Funds Europe – How are asset allocations changing due to the Covid-19 pandemic and the economic aftermath? What sort of trends have you been seeing of late?
Julian Ide, Franklin Templeton – The clearest trend we see is an increasing demand for income-generating assets in particular. People are unclear about markets like the US, given the impending US elections, but what they are looking for is solutions increasingly. Income is one of these, whether it’s fixed income or income-generating equities, particularly fixed income in EMEA, but also asset classes like convertible securities. Social infrastructure and alternatives have also been a key area of development. We see a lot of demand, and we’re raising quite a lot of money to the extent that within our business, we’re probably at record levels of assets in the alternatives space.
Nigel Smith, Ninety One – Picking up on the point about alternatives, I would say real assets more generally – for us, that includes additional things like gold, which may become a longer-term strategic allocation, but more broadly, we’ve seen a high level of demand for risk assets generally, and that’s partly coming from slightly less-well-funded pension schemes or continued demand from more growthier elements of the market – the LGPS [local government pension schemes] being one example. We’ve seen demand for strategies offering genuine resilience – for us, that includes strategies from our Quality equity investment stable.
As we’ve all examined what’s really important to us, we’ve seen a fast track towards focus on sustainability, particularly carbon-avoiding strategies.
Eugenio Cicconetti, Schroders – We have also seen an increased demand for sustainability. I’m not saying that last year it was not a top-three theme for our clients, but now it is an element of priority in each conversation. I can also echo Julian in his comment on the solution and income side, where we are definitely seeing a relevant demand from some clients that are trying to identify different streams of income.
Darren Pilbeam, Natixis – The other area that we’ve started to see increased interest in is thematics, particularly around any strategy or idea that has again been increased by the pandemic, whether that be digitalisation, healthcare or perhaps any AI-related activity, and that will likely continue.
On the equity front, it has been a year of two halves. At the beginning of the year, as the pandemic kicked in, regional allocations were still very prevalent, but what we’re starting to see now from our clients, particularly on the wholesale side, is they’re taking a bit more of a holistic global approach to asset allocation. It’ll be interesting to see how that one pans out.
On the tactical side of asset allocation, it’s proving to be extremely difficult for clients. Where do they start? What’s beyond the pandemic?
Pascal Duval, Amundi – As you know, we’re living in a negative rates area, and in continental Europe, it’s a wake-up call. Banks and life insurance companies can’t deliver a guaranteed return of 2%-plus as they have done for so many years, and that’s a major issue for income solutions, which are still very much needed: a unique window of opportunity for asset managers. Also, as has been said, there is a huge appetite for thematics. It’s storytelling and easy to sell.
Thirdly, in ESG we have seen more emphasis on the ‘S’ social side due to Covid. As we see more hard data coming back on the economy, inequality progressions and poverty, the social impact of Covid has become clearer.
Finally, despite all this, we are still seeing a ‘winner takes all’ behaviour, with huge appetite for five-star ranked funds, and skewed net cash flows towards five-star products.
Robin Creswell, Payden & Rygel – In a short survey conducted with industry participants, a lot of them mentioned ESG, but it’s not obvious that there’s a close correlation between cause and effect. The biggest overwhelming factor is that as a result of Covid, we’ve gone significantly deeper into negative interest rates for Europe, for Japan, and US bond market rates have also declined substantially. That does two things: first of all, it gives equities a theoretical infinite valuation if you use a simple discount model, so it’s very difficult for asset allocators to anchor valuations around anything that really makes sense; secondly, we effectively have to almost ignore all of the historical correlation and liability and modelling data of the last 30 years, because once you get into zero or negative interest rates, the traditional models begin to break down.