Economic research firm FactSet invited a group of senior execs from several of the largest global asset management institutions and sovereign wealth funds to meet at the FactSet EMEA Symposium in Monaco last month. The conference focused on the key issues and near-term outlook for the fund management industry. Guest speakers at the symposium included Dr. Thomas Mayer, founding director of the Flossbach von Storch Research Institute, and Robert Mellor, Tax Partner and Alternatives Tax Leader at PwC in the U.K.
Key themes for asset management industry
Finding ever-elusive yield
The FactSet report highlighted that the search for yield in a low growth environment was the dominant topic among the attendees, and who seemed to generally accept accept Mayer’s view of the “New Normal” – an environment of low, unstable economic growth, characterized by short and weak recovery phases. Mayer went on to argue that stocks were actually relatively inexpensive and presented the best long-term investment opportunity today: “You have to be in equities. Bonds is not a place to be,” he noted.
Conference attendees were in agreement that it was “difficult to allocate away from equities, but that under these circumstances allocation is critical.”
Mayer also elaborated on his theory that in today’s environment, investment risk must be reassessed: “The theory that ‘volatility equals risk’ is nonsense,” he argued. He went on to say that practical risk management should take factors such as the holding period and the quality of investments, and investors should be searching for stocks with a low probability of loss over the long term.
This view led to lively discussion amongst the group, since performance measurement today typically focuses on the short-term.
All participants were in agreement that the proliferation of regulatory requirements has increased the cost of doing business in the asset management industry. Most also agreed that the new regulatory environment is here to stay, and the asset managers are still expecting the cost of current and future regulatory initiatives to further impact their businesses. There was also general agreement that industry needs to keep its thumb on the pulse of the global regulatory environment, especially since new regulations can affect asset managers directly and indirectly.
A number of the asset management teams at the symposium noted they are reviewing their processes in light of the new regulations. Virtually all agreed that technology and data management was becoming a greater focus and expense as they looked to comply with evolving requirements in the most cost-effective way.
The report also highlighted a new trend as asset managers look to capitalize on the data they are generating for regulatory reporting purposes. Keep in mind that in many cases the same data is required to satisfy multiple regulations, and, moreover, the same data can also provide deeper insights for research and analysis.
Increasing scale and efficiency in the asset management industry
In his presentation, Mellor argued the industry was likely to experience continuing change in the years to come. He pointed to PwC’s report Asset Management 2020, A Brave New World, which forecasts an industry landscape that will see a continuing rise in assets, shifts in investor demographics, and increasing pressures on the asset management industry from various directions. Mellor also warned that the industry must make changes to prepare for future challenges and try to develop them into competitive advantages.
He also suggested that factors such as globalization, a growing trend towards multi-asset strategies, increasing costs, and evolving fee models means that asset managers will be reviewing their operations and seeking greater efficiencies. Expect to see more investments in technology and data management, and specialized outsourcing will become increasingly necessary. Using technology to gather and analyze quality data will lead to improved investment decision-making, and permit more efficient and accurate reporting and disclosure to both investors and regulators.