The financial crisis of 2008 was a turning point for the funds selection community and the main theme of the event was not so much predicting the next crisis but understanding how the landscape has altered and how companies face new challenges and comply with new rules and regulations. For its 5th edition on 3 April at the Parc Alvisse Hotel, FundsEvent addressed topical issue by welcoming experts with in-depth views of what is happening in the sector and what strategies should be adopted in this context.
The first panel discussion (1. List of panellists at the end of the press release) was led by David Ricketts, Associate Editor of Ignites Europe, a Financial Times service. Specialised in fund industry topics, David Ricketts concentrated the debate around regulations, AIFMD and its impact on the funds industry, as well as fees in Europe.
Regulation ‘tsunami’ in Europe and the regulator’s response to the financial crisis
If fund management cannot be considered as responsible for the crisis, it has a role to play in forecasting risks and preventing future economic turmoil. ‘We did not learn from the past crisis’, explained Sebastien Cordoliani. When the crisis became global due to the collapse of the sub-prime market in the United States in 2007, there had been signs that should have rung alarm bells on the specialists’ minds. It is possible to study what happened thanks to statistics for instance. However, we only study the final results and not enough the ‘whys’.
Before the crisis, risk managers did not have many problems and when the crisis occurred, they in consequence, did not have the right tools to deal with it. It is critical for the sector to count on professionals that understand how it works, and what investment strategies have to be chosen to preserve the balance. Now, with new regulations being implemented, asset managers will have to comply with them and adapt themselves accordingly. However, it is not so easy since each country interprets them as they want. Moreover, as underlined by Charles de Lamaestre, there are 40, up to 50 new regulations that companies will have to integrate within the next five years. He then talked about the role of investment banking sector and its influence when it comes to opposing regulations.
AIFMD and the impact on the fund industry
The Alternative Investment Fund Managers Directive has represented an important change for the asset management sector. The question is to know if companies will be able to comply with these new rules. On this point, Antonio Forte, together with Sebastien Cordoliani, agreed on the fact that a company needs highly qualified people when talking about investment managers and risk managers. This regulation increases the role of investors and according to Antonio Forte, a holistic approach from all European countries will be a condition for its success.
The discussion ended on the topics ‘Fees in Europe’ and the fact that the current yield level are really approaching the breakeven point where it is hardly profitable for investors to invest in a bond fund. The panellists also discussed the changing role of central banks and the role of asset managers in this new landscape.
The second panel of the day (2), also led by David Ricketts, was focused on investments: smart-beta strategies and performance issues. Indeed, some investors are completely moving away from traditional investments to alternative strategies, a strategy known as smart beta.
Lieven Jacobs opened the session by reminding everyone what investors had gone through over the past 10 years. To give some numbers, the amount of equity allocation in the 90s was about 50% against 20% nowadays. Institutional investors’ main interest now is to conserve capital and to be attentive to where the return is allocated. Needs are clearly changed and investors are looking for secure long term investments and effective strategy.
What drives performance in the funds selection industry? The question is challenging. Investors want to tell their clients to see this in the long run but as Sebastien Cordoliani noted, it is not as simple as this since clients are more attentive to short-term profits.
Thus, much attention has been given to the rise of smart beta. ‘Now, we can explain a lot of beta on the markets, returns become more and more explainable’, said Sandra Niethen. Smart-beta strategies represent a qualitative approach according to her. The debate continued on the impact on these new strategies for active portfolio managers and an important aspect to take into account, the process towards normalisation (of currency, behaviour, etc.).
For the afternoon session, an exclusive Q&A session between Mussie Kidane, Head of Fund Selection, Pictet & Cie and James Anderson, Editor-in-chief, Pam Insight. The idea was to offer the audience a concrete view of a fund selector, regarding business and changes he has had to implement or not since the 2008 crisis.
Mussie Kidane works for the Wealth Management service at Pictet & Cie. They are a small team of less than 10 people and currently manage 55 funds. They spend a considerable amount of time and energy trying to understand each fund. Since 2008, the way he selects funds has not changed much but he spends more time deciding which one to select. He is more careful regarding what he picks. Prior to the crisis, their company used to spend a considerable amount of time looking for information on funds and understanding how they work but today, it has really become a critical criterium and they have pooled their strengths in order to ensure quality to their clients. When James Anderson asked him ‘How did you get through the tough times?’, Mussie Kidane answered that they have kept a good relationship with people. ‘These people know us and we know them too’. The relation is based on mutual trust. Moreover, he explained that 54 funds come from different ‘flavours’. Then when James Anderson asked him about performance and optimisation, he answered that it is a real challenge and that they are very cautious regarding fees; especially today with ETFs, low-cost business and smart-beta business. In conclusion, Mussie Kidane insisted on the fact that managing 2, 3, 5 or 10 billion is not the same and they pay the greatest attention not only to performance but also asset bases and how they grow. When they select a fund, they look after it for 5 to 10 years.
Funds professionals also had the opportunity of knowing more about topics that most fit their interests through 12 different workshops organised by expert companies from within the sector: CPR Asset Management, AllianceBernstein, AXA IM Benelux, Amundi ETF & Indexing, BNY Mellon, Henderson Global Investors, Lombard Odier Investment, Petercam, Robeco, Invesco, M&G Investments, Eurizon Capital SGR.
This event also provided many opportunities for meeting and interacting in a more informal way during the networking sessions, where they could explore the DNCA Finance and Saxo Bank stands while enjoying a coffee break, lunch or the closing cocktail.