“It is a crucial time for asset managers,” said David Ricketts from Financial News, the moderator of the CEO panel during the European Fund and Asset Management Association’s Investment Management Forum in Brussels on 23 November. With Russia’s full-scale invasion of Ukraine, rising inflation, increased interest rates, there were “several headwinds facing the sector.”
Challenges do remain and “cash is now one of the biggest competitors to the industry,” he added, making bank deposits very attractive to investors. So how has the year been?
Not all “doom and gloom”
It hasn’t been all “doom and gloom,” said Hamish Forsyth, CEO of Capital Group. “Cash is--on the one hand--a powerful competitor for a lot of what we’re doing right now, but it’s also the gateway drug, isn’t it? Cash rates will decay. People have an enormous amount of cash not put to work… We have to do our jobs very well to encourage people to make better long-term plans than sitting on cash.”
“Cash is clearly a mentality for investors,” agreed Philippe Setbon, CEO of Ostrum Asset Management.
“I do see some of the volatility impacting our industry,” said Karin van Baardwijk, CEO of Robeco Asset Management. But she also didn’t see only “doom and gloom.” “It’s about adaptability and resilience and how you deal with all those uncertainties and volatility in the market, and clearly we do see continued volatility, ‘22, ‘23, ‘24--yes, still the same. But I think what’s different is our investors are not looking on a year-to-year basis, but from a longer-term perspective.”
The offering around customised sustainable solutions is something that I expect a lot of
There are also “bright spots” going forward, she added, such as sustainable investing. “The offering around customised sustainable solutions is something that I expect a lot of,” said van Baardwijk. “The transition topic is massive.”
While the year was difficult for fixed income investors, admitted Juan Bernal, CEO of CaixaBank Asset Management, they found they could bring back some products that hadn’t been sold in the past 10-12 years. “I see 2024 with money markets competing quite well,” he said. In addition, “I don’t see that ‘hard landing’ that most of us saw at the end of 2022 for ‘23. We see a ‘24 with a rather more soft landing.”
For Johan Lema, CEO of KBC Asset Management, we’re in a “multi-crisis” period. Despite this, “we’re very resilient as a sector,” he added. “The big change that we saw the last couple of years, is that with the low-interest rates, we see a lot of our clients have seen investments as an alternative to savings and deposits.”
“I think a lot of our clients have come to realise that--looking at a longer-term horizon--putting some money to work on the longer term is a very beneficial thing to do. And it complements the deposits,” said Lema. “Of course, we’ll have to see now with interest rates probably higher for longer how that will work out.”
Technology, AI changing the business
The panellists also discussed the impact of technology and artificial intelligence on the industry and potential applications, ranging from analysing data sets to decision-making.
At KBC Asset Management, instead of exploring ways of “finding alternative data to create alpha,” “we really went into the area of decision-making,” said Lema. The firm has developed an asset allocation model, which took around two years, and launched their first fund in Belgium which is entirely managed by a model.
We’re not at the stage yet that we can say, does the model really discover new patterns that we don’t have as the expert teams? Not really. But sometimes we see decisions that the model takes that gets us thinking
“Three years later, we always say it competes ‘effectively’ against traditional approaches, which is okay. Is that spectacular? Did we find something incredibly new? No, but I think the promise lies in the fact that it has some advantages: you’re building datasets, so over time, this will become more and more powerful. We’re not at the stage yet that we can say, does the model really discover new patterns that we don’t have as the expert teams? Not really. But sometimes we see decisions that the model takes that gets us thinking.”
“It’s out there; we see how it works; we learn a lot from it, which also means that we’re doing some things different in the expert teams. But I think the value will come out of it over time. We always say, when someone in our team with 20-30 years of experience retires, we hope to keep 20% of [their knowledge]. If it’s in the model, we keep 100%. And that will make a difference over time.”
Tokenisation and retail investors
“I have been in this industry for already 34 years,” said Setbon. “And for the first time, I have a feeling that technology is shifting the way we manage our business.” But it’s not only AI, he added. “Tokenisation is very much important for the future.” It’s a potential tool for asset allocation that could even be used to boost the participation of retail investors in markets.
Convincing young talent to work in finance
“I think the most important part of AI and technology is: how can we make sure that it continues to provide new insights?” said van Baardwijk. It will be key to have the right data and the right people from a data science perspective. “I don’t think that the magic always happens in the data itself; it’s the applied side of this. So what we need is people to understand where alternative data sources can make a real difference in your investment management processes.”
Technology is going to reshape our companies
“Technology is going to reshape our companies,” said Bernal, echoing the views of the other panellists. As technology evolves, firms will need to make sure they have the right people, that they work on upskilling and that they recruit people in sectors like ESG, data analytics and mathematics. “I go to colleges and universities and I try to encourage people to come to the financial sector. We’re not really well-looked at. So how can we make attractive a sector that seems to be quite old?”
It’s true that the war for talent has been “pretty fierce,” said Ricketts, and it’s not easy to compete with tech giants like Google or Amazon, which offer perks that are attractive to the younger generation. Is this leading to a new era with increased competition?
It’s not just in technology, said Forsyth. “I think this is true across the board.” and the social purpose of the investment management industry--and its impact on people’s lives--are not well-understood.
Lema noted that he was most concerned about “the timing issue.” On the one hand, they have a generation of senior experts who have “grown into the business over time,” and on the other hand, they’re now hiring a lot of younger people that are more familiar with the data or technology side, and have little or no knowledge of the investment side. “We need to be able to convince the senior asset managers to transfer their knowledge to the ‘tech people.’” But it’s a difficult, cultural shift, he noted.
The right culture and “growth mindset” to embrace new talents are key, added van Baardwijk. “The purpose of your company becomes more and more important. It’s not about only financial rewards; I think it’s about having an entrepreneurial spirit, being innovative and having a clear purpose.”
Navigating ESG-related risks
Sustainable investing and ESG is clearly a “massive topic,” said Ricketts, with greenwashing accusations and revision of the Sustainable Finance Disclosure Regulation commonly seen in the news. His question to the panel was: how do you navigate risks associated with risks?
SFDR is both a blessing and a burden, replied van Baardwijk. “There is a burden element to this: the amount of money and effort and resources it takes to live up to expectations that you’re not really sure of, if you’re getting it right.”
But there’s also the “blessing part.” “I think with the taxonomy in place, with SFDR regulation in place, the more that we disclose, the more that we talk about it, the more I think it will help our clients to distinguish, to understand why the regulation is there, and also for them to have a choice in, ‘Who do I allocate my money towards?’,” she added.
“This is something that is here to stay,” said van Baardwijk. “[Regulation] helps to have a better and deeper conversation with our clients, and it forces us to disclose how we actually use ESG data on a very granular level into our investment management process.”
“Navigating the topic of greenwashing will be extremely important,” she said. “Our industry’s reputation is also at stake, I would say, if we get this wrong. So I think it’s also a collective responsibility to walk the talk and do exactly what we’re portraying to the outside world.”
“In the last five, six years, ESG has become mainstream for our industry,” added Setbon. But “nobody has the same definition of what is a sustainable investment. Nobody has the same definition of what is transition.” It’s key to clarify what these terms mean. Asset managers shouldn’t be competing on definitions, he said. “We have to apply the definition and compete on how we execute the regulation.”
To conclude the panel, Ricketts asked the five panellists about their hopes and ambitions for 2024.
Decreasing the cost of anti-money laundering checks when onboarding was on Forsyth’s wishlist for next year. “It’s frightfully complicated,” he said. “The regulators set the rules, but we are going to have to solve it, and just make it much easier to provide what is needed to each other, when it’s needed.”
“On the retail side, it’s tearing down the barriers to start investing--I think that’s the most important thing,” said Lema. “There’s still a lot of things to do, especially in the digital space.”
“We have to accelerate and succeed in the [sustainable] transition,” said Setbon. It’s crucial for everybody to converge on definitions and a framework to implement the transition. “In five years’ time, it will be too late.”
For van Baardwijk, asset managers, asset owners and the financial industry as a whole need to take responsibility and contribute to achieving a low-carbon economy. “There’s a lot that we can do as an industry to contribute to that--not only asset managers, but I think the whole ecosystem.”
“We need time to adapt to the current situation--I’m talking about inflation, mainly,” said Bernal. Financial institutions are part of the solution, but need time to adapt.