LUXEMBOURG: Achieving consistent standards for sustainable funds and ensuring acceptable returns in an inflation-beaten market are some of the biggest challenges facing asset management CEOs today.
These are some of the key takeaways from the CEO panel at the European Asset Management Conference in Luxembourg held earlier today.
BNY Mellon Investment Management CEO Hanneke Smits and Feri CEO Marcel Renné pointed to the combination of inflation, rising interest rates and the war in Ukraine as some of the developments that will occupy the mind of investors in the coming months.
Renné de Feri advised companies that were able to raise funds during the currency supercycle to focus on inventing or investing in new investment solutions for clients.
He also expects multi-asset portfolios that capture opportunities from private markets and hedge funds to remain flat over the next year.
“It’s clear to me that markets will remain very, very volatile and risk premiums will likely remain very high,” Smits said.
She added that with rising energy prices and persistently rising inflation, central banks will find it much harder to offset negative market shocks than before.
“We expect the combination of Fed monetary policy tightening and the likely flight to safety flows will likely mean the US dollar will continue to appreciate,” Smits said.
Marc-André Bechet, Deputy CEO of the Luxembourg Fund Industry Association (Alfi), pointed out that the fragmentation of sustainable frameworks is the most pressing challenge.
“The percentage of Article 8 funds in Sweden is 92%, while the average in Europe is 25%, because the regulations are interpreted in different ways and many states also set their own regulations. On top of that, we have five categories for ESG funds in the UK, which doesn’t help,” Bechet said.
Describing the EU taxonomy as the first step towards a standardized framework, Bechet said the next step is to come up with a common taxonomy worldwide and take a “helicopter view” instead of trying to shoot leverage fragmented markets by finding advantages and niches.
This resonated with BNY Mellon’s Smits, who said cross-company collaboration and harmonization should be a key priority for the industry.
“We have advocated for collaboration between regulators and harmonisation, there is so much regulatory interest and scrutiny, which in itself is a step in the right direction, but we need to ensure that there is a global consistency on measurements, definitions and reporting.”
Bechet added that there is noticeable “regulatory fatigue” among companies and that industry needs to participate in consultations on regulations to ensure they are “truly fit for purpose”.
A survey of attendees found digital transformation to be the most important driver for the future, something Smits agreed on.
She said the impacts that innovation and technology have had on investment management cannot be underestimated.
“At the start of the last 20 years, it was seen as a tool to improve the back and middle office.
“Increasingly, we are seeing that integrating artificial intelligence into areas such as investment research and portfolio construction really ensures that we combine the best of both worlds, human capital, as well as power of the machines, all at the service of better performance for our customers.’
Smits said his company will continue to invest in its own digital transformation to meet the demand for low-cost products.