Adapting to Disruption: The Investment Industry’s New Normal

For the first time ever, the CFA Institute European Investment Conference will be held entirely online. With interactive sessions analyzing the most critical issues in the financial markets, the conference is a must-attend event for portfolio managers, analysts, CIOs, and CEOs. Join us 17–18 November 2020.

Asset managers are intimately familiar with the challenges facing the investment industry. They have struggled to show positive returns in a low-growth, low-inflation environment, and the rise of passive management strategies has increased competition and compressed fees.

But crisis also spells opportunity and a panel of experts at the 2018 CFA Institute European Investment Conference welcomed these challenges as a way to bring positive change to the investment industry.

“For our clients, it’s reducing the fees, the costs, increasing transparency and the reactivity that we are offering,” said Naïm Abou-Jaoudé, CEO of Candriam Investors Group. “This is positive news for the industry.”

Pascal Blanqué, group chief investment officer at Amundi, displayed a similarly healthy attitude towards competition delivering better results for clients. “Be cost efficient if you want to stay competitive and send value back to the end client,” he said. He recommended embracing the changes to focus on delivering value. “Turn your organization into an effectively client-driven organization versus a product- or production-led type of organization,” he said.

Marie Dzanis, head of EMEA and CEO of Northern Trust Global Investments, summed up her reason for optimism in a single sentence: “People will always pay more for something that’s difficult to do.” Firms that clearly communicate what they’re doing and how it benefits their clients will be positioned for success.

“We’re highly committed to passive [management], but we do believe that there is space in a portfolio for both,” Dzanis explained. Her firm has been working with clients to explain the risks involved in trying to access cheap sources of alpha by misusing products. “We spend a lot more time up front with investors, looking at how to provide clarity on that,” she said.

Blanqué noted that clarity seems to be an issue across the entire investment industry. “I think that we are moving into a period where the classic distinctions between so-called passive and active are more and more blurred,” he said. He feels that the idea of passive management is evolving, changing from basic capitalization-weighted indexes to become sets of rules that replicate different sources of investment returns.

“We are left, basically, with a new, idiosyncratic definition of alpha,” Blanqué said. He described it as “the unexplained or non-systematic component of alpha.” In this environment, successful investment firms will rely on the unique perspectives of talented individuals.

“I think one of the biggest things that is front of mind is talent,” Dzanis said. Developing and retaining skilled investment professionals is a major concern for her. “I believe that we have to be more emotionally savvy on how to engage employees,” she said. “It’s not just about productivity.”

Abou-Jaoudé also had concerns about talent retention, especially in an environment marked by more investment firm consolidations and acquisitions. “I can tell you, it’s tough to keep the people,” he said, “to retain the people and to keep them on board during a sale process. Usually, you lose the talent first, and you lose the best skills.”

Ultimately, the future of investment management will offer a mix of challenges and opportunities. But the payoff will be well worth it for those who persevere. “We are in a fantastic industry, asset management, even if we are challenged today,” said Abou-Jaoudé. “Hard work will pay at the end.”

This article originally appeared on the CFA Institute European Investment Conference blog.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/non-exclusive