The gravity of what is happening as a result of Covid-19 casts a long shadow over other thoughts. Accompanying the shock, distress and grief, the demonstrations of selflessness, compassion and resilience have lifted our collective spirit. We are indebted to all those who do the extraordinary for others.
Europe-wide industry firms and their staff have executed the largest business continuity exercise of their history, continued to professionally deliver their services in volatile and pressurised conditions and been highly responsive to increased information and data requests from regulators and other stakeholders.
People in our industry have wanted to make sure they did not let anyone down – and they have not. Relative to other acts, these are ‘ordinary’ things, but they have been done in extraordinary circumstances. Our industry, which is geographically dispersed and dependent on complex decision and service chains, has demonstrated both resilience and an ability to manage disruption. This is an important collective achievement and in no way underestimates what may lay ahead.
The economic fracture linked to the pandemic arrived with alarming speed and its effects are playing out across financial markets and within funds/portfolios every day. Rather than speculating on things we cannot predict, there are many things which the European industry is considering. I will focus on two.
Firstly, the impact on future returns, expectations and the dialogue we have with clients. Since I started in the industry at the beginning of the 1990s, I would observe that the harshest market conditions often create the best prompt for really valuable long-term conversations. Lower for longer (interest rates) and an expectation that bouts of price volatility will persist for some time will change the nature of our conversations with investors (in terms of content, method and frequency). In this crisis, technology and digitalisation have entered the broad population’s lives and consciousness in a very accelerated way. This will open and widen pathways in education, distribution and client management which will better serve investors.
Secondly, how best to support the economic recovery? From an EU perspective, attracting and efficiently delivering capital is mission-critical. What will encourage capital (wherever sourced) to seek opportunities here and how we ensure that our interconnected world and industry work together to recover.
Publicly quoted assets have experienced valuation pressure, pushing some investors to the top of the asset allocation ranges they have for ‘illiquids’ – this does not invalidate their relevance.
Recovery will require a new or updated dialogue with policymakers and regulators at the national and EU level as the economic ‘scarring’ from the crisis will not be homogeneous. Just as businesses are re-evaluating what is necessary and important to them (and focusing relentlessly on those things) – this will equally apply in policy and regulatory circles.
Any marginal euro which industry firms have should be put towards innovation, investment sourcing and things which help deliver for ailing economies and investors. Strong compliance and conduct cultures remain non-negotiable but investing, disproportionately, in areas that do not improve client risk/return or cost outcomes will be viewed as a source of concern.
“This time it’s different” was typically used in a context which we were always warned to be sceptical about – in these circumstances, it is very apt. We will have to react differently too.
By Pat Lardner, chief executive of Irish Funds
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