Speaking at the Cross Border Distribution Conference in Luxembourg on 25 May, Charlie Jewkes, head of global wealth at Aviva Investors, said 2022 had been a difficult year for the industry due to higher energy prices and the rapid rise in interest rates, which caught many market participants off guard. “Investors knew it was coming but the pace has caught many by surprise. Add to that the war in Ukraine and the energy crisis, and you have a perfect storm of factors that has really changed the industry,” Jewkes said.
Jewkes said markets were slow to adjust to the speed of policy change, resulting in many investors parking their money in money market funds. Cash invested in money-market funds climbed to a record $5.43trn in May as investors seek higher rates.
Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, said data on monthly flows showed 2022 was the first full calendar year of net outflows recorded, although there were cautious signs of an uptick in activity and some positive sub-trends. “Index strategies--excluding exchange traded funds--sustainable funds and multi-asset funds were all still in positive territory.”
Davina Goodall-Smith, chief operating officer for EMEA at Nikko Asset Management, believed the cost of living crisis--not economic uncertainty--was the main factor driving outflows and movements into safe haven assets.
Major challenges lie ahead
In addition to the difficult economic environment, Goodall-Smith said asset managers also have to contend with numerous other industry challenges, including a flood of new regulation and keeping pace with new technology, and adapting services to cater for changing demographics. “Traditional asset managers are still predominately focused on serving older generations. The question is how can we attract investments from the new generation, many of whom exclusively make investments on their mobile phones.”
Lipkin said he expected the asset management industry to undergo a major transformation. “We are at the foothills of exponential change. Within two to three years things are going to look very different,” he said.
Goodall-Smith agreed, adding that firms will have to work hard to introduce new technologies into their operating models and educate existing staff on how to integrate it into their workflows. “It sounds succinct, but it’s going to be bloody hard work. There’s no panacea,” she said.
Artificial intelligence an opportunity
Lipkin said artificial intelligence would be a significant driver for change in the industry, adding that there is even serious conversations about regulatory AI consulting industry AI. “It is incredibly exciting, but it’s also quite scary.”
Goodall-Smith said the emergence of AI tools such as ChatGPT has accelerated the pace of change. “As soon as something like that comes along, it will be adopted regardless of what regulation does.” However, Goodall-Smith said it was important to recognise the limitations of new technology and that human checks and balances were still needed.
This sentiment was shared by Marie Dzanis, head of asset management EMEA, Northern Trust Asset Management, during the conference’s opening discussion. Dzanis said industry players need to cooperate with one another to better leverage technological change in the industry.
Dzanis said industry players could learn from the ETFs market, which has had success in recent years by adopting a ‘coopetition’ approach--competing for business while working together on issues that impact industry. “The real challenge we have is can the industry can come together and share ideas.”