The Forward Look
So what do our experts see as the biggest changes in the years ahead?
For Ninety One’s Nigel Smith, this is the critical juncture in tackling climate change. He comments “When we think about the mission to reduce carbon, including the umbrella Net Zero Asset Managers Initiative that we’re pleased to support, we strongly believe this must include the entire world. Specifically, the currently carbon-intensive emerging market economies; they need time, encouragement and resources to adjust. The asset management industry has a sizeable obligation, but exciting opportunity, to play a leading role in mobilising capital to safeguard our planet’s future. We have always believed that active management can be a force for good. Climate change is one of five mega-themes we are focused on, alongside the rise of China, technological disruption, demographic changes and historic debt levels, where we are helping investors think through how they can make the most of these opportunities in their portfolios.”
Aymeric Forest of Aberdeen Standard Investments agrees with Smith, commenting “The next decade may be different driven by changes in technology, demographics, policies, and climate, all likely to contribute to new imbalances as asset risk premia contracted. A 60/40 split may not offer the same returns. Active managers are outperforming again as return dispersion within asset classes increase. A major energy transition is underway that will generate significant investment risks and opportunities as an ESG dimension is increasingly being added to the return and risk objective of a portfolio. The demand for bespoke, outcome-based and user-friendly experience for investors will continue. Asset managers will extend their role beyond asset management, help their clients manage extra-financial risks, find better ways to diversify their portfolios and achieve their outcomes through targeted multi public and private asset solutions. This is more than passive investing.”
For Neil Blankstone of Blankstone Sington, the big question is how markets will fare in a new and different environment. He comments “Many have only ever been involved in a world of low-interest rates and relatively benign inflation, will the reality of the “new normal be very different…one of the biggest challenges ahead is likely to be the managing of expectations. That & everything to be driven by an ESG agenda, agreed with or not.”
Freddie Woodhead of JM Finn goes a step further. Looking forward to the next 10 years, he predicts “We will witness the death of dedicated ESG funds, which will become a thing of the past, with all funds incorporating it into their investment process. Many have already done this and it won’t be long before dedicated funds won’t be needed and a fully integrated ESG approach becomes the norm.
Woodhead also expects to see active management “returning with vengeance, probably to the cost of ETFs – probably a biased view but we hope to see active management trump passives over the next 10 years!”
The AIC’s Annabel Brodie-Smith claims that there is more work to be done when it comes to awareness of investment companies. She comments “Despite RDR we estimate only around 10% of advisers regularly recommend investment companies to their clients. Lack of knowledge and familiarity are still key barriers for advisers. The AIC has trained more than 8,000 advisers since 2011. The number of firms purchasing investment companies on adviser platforms reached a four-year high of 1,746 in the final quarter of 2020 which is encouraging. I’m confident that the message about the greater suitability of closed-ended investment companies to invest in less liquid assets, including property, is getting through.”
Looking ahead, Abdulaziz Alnaim of Mayar Capital believes that individual savers are now increasingly aware of the impact their investors can make. He comments “Mayar believe that the climate crisis is the greatest long-term threat to humanity. We owe it to our children and grandchildren to act quickly and decisively. In equity investing, the theory is on solid ground. Increasing amounts of capital allocated to companies which demonstrate best in class ESG business practice will see their cost of capital reduced. In turn, this incentivises other companies to operate with consideration to ESG issues, in a race to the top on standards. ESG investing can also help spark innovation that reduces carbon emissions (and therefore costs!).
“In the coming years, we also expect the focus of regulators to be defining what ‘Responsible’ investing is. Regulators are navigating a difficult course in being able to monitor self-proclaimed ESG Funds. This is particularly relevant for providers offering both an ESG and a non-ESG strategy. However well-intentioned, attempts to introduce frameworks around reporting and externally available ESG indicators have met with criticism. By creating specific areas of importance, rather than incentivising genuine change, it can have the reverse effect. We caution against the reliance on simple labels to make investment decisions.”
