The recent FT Future of Asset Management Europe conference covered a variety of themes affecting, and indeed creating opportunities for asset managers, their clients, and stakeholders. Edelman Smithfield has identified four key takeaways, and the resulting considerations for asset management communications programmes.
1. Private markets remain a growth engine
The continued importance of private markets as a driver of growth for the industry; specifically private debt and infrastructure was a frequently visited topic. The “tourist capital” in private equity, however, is causing some concerns and there was a sense that issues will arise from investors’ increasing appetite for illiquid assets. Speakers noted that regulators need to look closely at retail investors’ liquidity tolerance, ensuring they fully understand the implications of locking up their capital.
Takeout: To guard against these issues arising, it is incumbent on asset management firms to communicate the characteristics of investing in private markets to investors, particularly at the retail end of their client base.
2. The client is changing
There is an ongoing convergence of wholesale and institutional clients’ needs, meaning the way clients are serviced must, and is indeed, changing. Retail clients are becoming increasingly sophisticated and industry leaders noted it is becoming harder to delineate between “traditional” groupings of clients.
The expectations of clients are changing too. “Delivering products” is being replaced by increasingly bespoke solutions that fit clients’ specific investment objectives. The distribution process has flipped to become investors’ buying, not asset managers’ selling, with clients increasingly arriving at asset managers’ doors with a deep understanding of what they want at a later stage of their buying journey.
Takeout: Any communications programme therefore needs to be tailored, in the same way that the sales and distribution functions are becoming, with increasingly sophisticated messaging for wholesale clients.
3. ESG burnout is coming, and a common approach to regulation is required
The fragmenting of the ESG regulatory environment across jurisdictions was identified by leaders as an evolving issue, causing untold problems. In order for private capital to move the needle in reaching Net Zero, regulatory harmonisation and approaches are required, on everything from reporting to product labelling. ESG “burnout” was omnipresent throughout the conference, underlining how polarising the term has become.
The need to arm clients with forward-looking tools, and recognising education's centrality to achieving these critical goals, were discussed repeatedly. Interestingly, a few different voices noted that end investors both in the US and Europe are more aligned on their sustainability objectives than is often portrayed in the media.
Takeout: Communications programmes should therefore consider education around key issues as a central plank of any stakeholder engagement programme. One example would be the nascent but growing interest in biodiversity as an asset class, and helping investors understand the role their savings can play in reversing the loss of nature.
4. Risk assets will return
Higher interest rates globally have resulted in investors sitting on the sidelines in cash over the past two years, with large flows from all corners of the market into money market funds. In this environment, after years of “abnormal” double digit returns, panellists cautioned that the industry is about to face a period of lower, if albeit more normal, returns. Despite this recent challenging period for the industry, there was a sense of hope and confidence that risk assets are proving attractive once more as rate cycles peak. An expected dispersion in company valuations should therefore present an opportunity for active management to generate alpha.
Takeout: It's often an industry trope that after every downturn, active managers proclaim “now is the time for active management.” Cutting through the noise and actually proving alpha generation via your communications programme becomes paramount at this point in the cycle. Authentic and detailed accounts of the approach taken by portfolio managers, backed up by performance data, will set firms and managers apart as they show the real value of their approach to generating alpha.
The asset management industry and global financial markets are in a period of transformation, which is as exciting as it is daunting. There are some big issues, both emerging and established, that will continue to gather pace in 2024.
Our learnings from the FT’s two-day event is firms that take action on important issues continuously evolve their offering and build their stakeholder communications programme in a way that reflects the needs and concerns of their clients, will keep pace in this fast-changing environment.
Olivia Evans, Director, (olivia.evans@edlemansmithfield.com) and David Parton, Senior Account Manager (david.parton@edelmansmithfield.com)