Perspectives
“What is the pressing issue facing asset managers this year?”
Photo Banque Havilland
FEBRUARY/MARCH 2019
Photo Banque de Luxembourg Investments
68
Cultural revolution
Risk premia
Patricia Kaveh Head of distribution Banque de Luxembourg Investments
Stefano Torti Group head of asset management & advisory Banque Havilland
In 2019, asset managers will face two major challenges--in investments, and in their business and distribution models. As far as investment challenges for 2019 are concerned, as the economic slowdown is starting to have an impact globally, investors will face greater volatility and more difficulties on the markets. Fund managers will have to be very selective in their investment approach and active management will be the key for 2019.
There was not much cause for celebration in the asset management industry in 2018. The S&P 500 posted the worst month of December since 1928, and more than 90% of the major asset classes failed to outperform a short-term government bond allocation, something that has not happened in more than 30 years. What also disappointed investors was the fact that fixed income and several hedge funds gave little help to multi-asset portfolios, with the HFRX hedge fund index down more than 7% for the year.
Another aspect is the increasing investor attention in ESG criteria. Fund managers will need to see how they can incorporate these extra-financial considerations into their investment approach and portfolios. While in some asset classes this will be straightforward, in others, such as fixed income and emerging markets, there will be more of a challenge. Fund distribution and business models will experience their own challenges in the face of a changing landscape characterised by constant regulatory pressure, the need to respond increasingly quickly to clients’ requirements, and new dynamics linked to demographics, digitalisation, globalisation and cultural shifts in our society. As well as this, and in contrast with the past when asset managers sold investment funds, nowadays, we have to offer service-oriented solutions. The challenges in our business are to reconcile these different dimensions by organising our own cultural “revolution” by being agile, proactive, responsible and engaged. These for us are the key guidelines that will help us rethink × our business model.
With this legacy, the real challenge that asset managers face for 2019 and the years ahead is to provide clients with durable portfolio construction techniques. Techniques that allow investors to profit from a larger array of “risk premia” than those provided by a simple equity-bond allocation. In this way, portfolios will be less affected by violent market swings, proving that there is value for the fees paid (compared to the ETF industry that continues to grow their share of the market at lower and lower prices). A strong commitment to research, innovation and creativity is a must for 2019. These concepts were sorely lacking in previous years as the majority of the asset managers surfed on the back of a multi-year bull market, possibly comforted by the famous John Maynard Keynes quote that “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed × unconventionally.”