In the face of market volatility, uncertainty, complexity, and ambiguity, a combination popularly referred to as ‘VUCA’, Ingo Mainert, CIO Multi Asset Europe at Allianz Global Investors, urges investors to embrace a fresh interpretation of VUCA: vision, understanding, clarity, and agility.
This perspective came during his keynote speech at Wednesday’s ALFI Roadshow in Frankfurt, a gathering organised by Luxembourg’s 1700-member fund management trade association. The event provided a platform for industry experts to exchange insights on the investment climate and topics pertinent to Luxembourg, attracting roughly 300 delegates.
Key discussions revolved around imminent alterations to the EU›s AIFMD directive, sustainable finance regulation, ESG data challenges, and the evolving requirements of a new generation in asset management. Previous ALFI-hosted events this year spanned South America, Singapore, New York, and Amsterdam.
The ALFI Roadshow also featured a lively debate on alternative investments like real estate, infrastructure, and other real assets, which are of considerable interest to institutional investors in Germany. These investors are a significant part of Luxembourg’s alternative funds ecosystem, representing a third of the €5 trillion domiciled in the Grand Duchy’s fund industry.
Regulatory restraints for German institutions
The dialogue revealed that regulatory constraints have compelled many German institutional investors to reduce their alternatives portfolio. This regulatory cap on alternatives, a quota defined as a percentage of portfolio holdings, has reportedly contributed to the reduced activity in Luxembourg’s alternatives market.
Despite this, industry insiders like Annika Knoke, director of business development at DZ Privatbank, argue that the relevance of alternative investments is increasing, especially given the fluctuation in interest rates.
There is a noticeable divergence in the perception of the ‹retailisation› of private investments between Frankfurt, which shows mixed feelings, and Luxembourg, where the EU›s newly introduced ELTIF 2.0 regulation is seen as a potential game-changer in which its investment services ecosystem can play a major role.
Knoke mentioned «strong demand» for ELTIFs, although she stressed the potential burden of more comprehensive reporting by issuers. Meanwhile, Katja Lammert, chief administration officer at MEAG still is not convinced that ELTIFs will become a success. “Retailisation is absolutely desirable, but Eltif first has to prove itself,” said Lammert.
Lammert suggested that the compatibility between infrastructure and open funds needs careful consideration. “It should not be trivial. Infrastructure and open funds are not a match for each other.”
Enduring relevance of interest rates
Mainert kicked off the roadshow by emphasising the enduring relevance of interest rates in the investment environment, with higher Eurozone interest rates as a signal towards a more restrictive monetary policy by the ECB. He acknowledged potential financial instability but remained sanguine, highlighting historical data as evidence of its manageability, even as the risk of financial accidents persists.
Mainert said he considers a future recession «absolutely predictable,» given central banks› power to influence economic cycles, and anticipates a phase of ‹muddling through› for 2024 and 2025. The VUCA concept, he adds, will remain pertinent, especially in the context of the emerging ‹geo-economics› trend combining economic and security considerations in national and global strategies.