ON THE AGENDA

Adjusting to the MILLENNIAL GROOVE

Greener, younger, more engaged – the next generation of investors will have different ideas to those who went before, but what does this mean for investment thinking at the highest level? Chris Sloley asks three CIOs whether the demographic shift is reshaping their strategies

If you will allow a brief moment of self-indulgence, it could be argued that one thing highlighting the shifting tide in the investment industry is the continued popularity of Citywire Selector’s 40 under 40 publication. This annual directory of emerging talent in European fund selection is both wellread in print and then closely monitored on screen when the full list is revealed online at the start of each year. Much of this popularity reflects the fact that people want to know who are going to be the decision makers in the years ahead.

Succession is nothing new, but there is an apparent change in mind-set taking hold among this rising class. These new faces, who were all born in or since 1980, qualify as millennials, and the millennial way of thinking is viewed as one which emphasises ideas such as equality, sustainability and putting experiences above material gain. If this change feeds through into consumption habits and business decisions, what impact will it have for those making allocation decisions? Plenty, if banks such as Credit Suisse and Deutsche Bank are anything to go by. Both have added millennialtinged themes to their mega-trends plans, with the former reconsidering millennial values and the latter looking at its divergence from older generations.

GOING GREEN EARLIER Vincent Manuel, who himself sits on the cusp of being a millennial in his early 40s and is CIO for Indosuez Wealth Management, says: ‘Millennial sensitivity means that investing clients’ savings in companies that have a positive impact on the environment is extremely valuable. Private clients are becoming much more open to thematic investing than traditional value/growth stories.’

He acknowledges that a rise in millennial thinking has helped push environmental issues to the fore. ‘Environmental concern is becoming mainstream in investment management in Europe and it is probably easier to spot among younger investors and citizens.

‘In France, the Paris Agreement was a moment where public awareness of the situation started to accelerate, but nowadays, according to several internal surveys, we know that most of our client base, at least in Europe, is very conscious of that.’

Manuel’s interactions with high-net-worth millennials is illuminating. The Paris-based Super

Allocator has seen them bring a different element of risk appetite to the table as well. In large part, Manuel says, this reflects the way people are getting richer younger, which is usually through the private markets. ‘The younger generations, especially entrepreneurs who have sold their assets, have a greater appetite to reinvest and they tend to like private equity. Given the availability of generating cash via the private equity market and the challenges posed by being listed, going public is not always an easier source of funding for innovative companies.

‘Many entrepreneurs highlight that going public puts pressure on earnings delivery, which is not always easy to manage when you are trying to build a long-term competitive advantage. This goal might require time and could also mean that you will be nonprofitable for several years. However, as companies achieve platform advantage, the attractiveness of being listed has diminished compared with the technological cycle in 2000 or in previous years.’

BUYING WHAT THEY BUY Rather than looking at where Super Allocators are investing, there is another way to capture these opportunities – through targeted funds. Several fund houses, such as Decalia Asset Management and Kairos, have launched millennial strategies, while others have sought to target thematic ideas around this demographic.

Jean-Jacques Friedman, CIO at Natixis, has overseen the launch of several thematic funds in recent years covering ESG, disruption and, of course, millennials, launched through its subsidiary Vega Investment Management. ‘This last fund is especially concentrated on thematics such as digitalisation, globalisation, welfare, urban life and ecology. It changes our organisation in the way that we need

Vincent Manuel, Indosuez Wealth Management

Enrique Marazuela, BBVA

Jean-Jacques Friedman, Natixis millennial portfolio managers to understand those news trends and models. Moreover, our clients and retail bankers have also changed a lot, with young bankers who are really invested in those thematics, especially in ESG.’

Friedman believes investors can capitalise on opportunities presented by millennials but he is quick to assert that the changing market is part of a wider move, rather than a solely millennial phenomenon. ‘Our investment approaches were already historically focused on growth stocks, which meant homing in on those with a competitive advantage for a changing world where the ‘winners take all’. This trend has accelerated, not only because of changing demographics, but because of the digital world and its implications.

‘Permanent access to information means a greater focus on product quality, lifestyle, ecology and innovation. And as a large proportion of the world’s millennials are in China, aided by their parents, this implies high revenues from markets such as luxury products.’

PART OF A BROADER NARRATIVE Friedman is not alone in thinking that there is a wider story unfolding here. Enrique Marazuela, CIO for BBVA, says the Spanish group has not had to do anything specific in the face of millennials being a more prominent market force.

‘The truth is that we have not noticed any dramatic change,’ says the former Citywire Selector cover star. ‘The reason could be that our base comes from commercial banking, where bank products, such as current accounts, time deposits, etc, are the rule and where risk products should be explained by our employees in depth.’

While Marazuela believes there is scope for more work to be done in areas such as ESG or

global diversification, he says there is a

risk of putting too great an emphasis on demographic change.

‘We do not see a “generation tectonic move” led by millennial customers in

that direction. The technology bias of millennials is present in the way they approach BBVA, such as through the web, mobile, etc, but it is not in a defined investment pattern.

Nevertheless, adds Marazuela, BBVA has added its own millennial thinking so that it doesn’t get caught out. ‘The new generation is digital-native and we have advance notification of these trends because of the millennial blood in our team. It is proof that diversity adds value if it is well managed.’