TINA - There Is No Alternative - is gone. That’s not a bad thing. And don’t write off the 60/40 portfolio just yet. And the asset management industry has had a clear impact on society and sustainability.
On 17 and 18 November, Efama, the European fund and asset management association, hosted its annual Investment Forum, with the CEO debate as a central feature: Maxime Carmignac of Carmignac Gestion, Peter de Coensel of DPAM, Patrick Thomson of JP Morgan Asset Management and Hans Stoter of Axa Investment Managers.
Carmignac cited a paradox: with higher inflation, money is rapidly becoming worth less, so you need to invest to maintain purchasing power. She mentioned that 185 billion euros have already flowed out of the sector this year, making this year the worst year since 2008. “But after outflows in fixed income, the glass is half full again.”
Thomson was on the same page, stressing the need to take advantage of higher inflation to invest more. “It is a cyclical phenomenon.”
De Coensel expressed caution. “I think we should be modest in our outlook. While central banks have successfully curbed inflation by raising interest rates, 2023 could potentially be a disinflationary year. However, there is a big difference between retail and professional investors. Retail investors are experiencing a shock like 2008, and only with proper pricing and transparency can you rebuild confidence. Institutional investors need to focus on their investment horizon and portfolio construction.”
Stoter put it a lot more plastically. “I am happy that TINA (There Is No Alternative) is gone. For retail investors, fixed income is quietly becoming an attractive alternative again. It has become a more stable asset class thanks to higher interest rates.”
Popular
Asked what the most popular asset classes are at the moment, Carmignac cited the Article 9 funds among SFDR, which saw some 30 billion in inflows this year. Next year, she sees potential in corporate bonds, whose expected default rates are currently too pessimistic, she said.
The 60/40 portfolios are also discussed. There has been much debate about this among professionals, just because of the positive correlation between equities and bonds, which has caused havoc in portfolios this year. Thomson expressed disagreement with the statement that these portfolios are dead. “The opportunity to diversify risk away from risky assets with fixed-income securities has once again increased a lot now that interest rates are again broadly positive.”
Thomason said active asset allocation can again play a significant role. “That does not necessarily have to be reflected in a 60/40 portfolio, but I am convinced that the concept of true diversification across regions, asset classes and products can really help retail investors in particular. Consequently, I think flows towards fixed-income securities will continue. But next year I am also more optimistic for equities, which have already corrected sharply.”
In that regard, Sloter mentioned that corporate bonds and short-term high-yield bonds are interesting.
Europe
“The European fund market as such does not exist,” Stoter said. According to him, the sector is too fragmented. He was joined by Carmignac, who is very active in both France and the UK, stating that “two-thirds of French people would rather talk about their own death than talk about money”. Education plays a vital role in this regard, she said.
Thomson: “Half of all assets in Europe are in deposits. That could be a lot better. Public policy can work efficiently, combined with sector initiatives. Consider, for example, the auto-enrolment programme in the UK, which forced people to start investing for their retirement. It was a combination of nudging and policy. By the way, I see great opportunities here for fintechs that really understand the customer experience for the greater good.”
Costs
With the challenging market environment, rising costs and declining asset bases, there is a hearty discussion in asset manager boardrooms about costs. Carmignac said that its business “continues to invest contrarily in people and resources.” De Coensel said DPAM continues to recruit, and that “analysts and managers need to be even closer to clients to make them aware of exactly what risks and opportunities are in their investment products”.
Education
It is a well-known problem that little is done at a young age to make people aware of financial education, and to familiarize them with financial products. Carmignac advocated making the concept of compound interest clear from an early age with examples, including in maths and economics classes. “However, I also see a strong gender inequality in finance. A lot of wealth is still concentrated in men.”
With 69 per cent of women living longer than men, they will eventually hold a larger share of wealth. But the financial sector does not appeal to women. “Men want to know how to invest, women why, and think more long-term. We still have a long way to go on transparency and suggesting the right financial products.”
In this respect, De Coensel also believes that “private and public markets need to converge more. We need to break down the silos between the two.”
Sustainability
Sustainability, as a hot topic, also featured in the debate, of course. Carmignac called for modesty from the sector, as “only one-third of global CO2 emissions come from listed companies.” De Coensel called on both asset owners and asset managers to be more ambitious to play a significant role. “They need to reach out to each other to work together. Collective engagement becomes fundamental to find a solution, and putting pressure on shareholder resolutions is also a strong leverage.”
Stoter, in turn, found that “ESG is used too much as a differentiator among asset managers. Rather, it is something the industry can work on collectively from a genuine long-term perspective.”
Thomson did not wholeheartedly agree, arguing that “at the end of the day, it still remains the client’s money, not ours. The customer decides what he wants to invest in.”
Greenwashing remains a major challenge and a real problem. The CEOs agreed on the importance of consistent data and transparency, combined with good regulation.
This article originally appeared in Dutch on InvestmentOfficer.be.