FundsLibrary’s five investment industry predictions for 2020
The investment industry has, as we know, over the last decade faced continuing pressures for change: from technological disruption and new demands on transparency, to the challenges of fee compression while serving a new generation of younger clients who are more financially savvy and demanding.
As we gaze into our 2020 crystal ball for the industry that we serve, here our five predictions for the coming year.
1. Major consolidation moves in the European platform industry
After breakneck growth in the European investment platform industry, we are now experiencing the consolidation phase. The top ten platforms at the start of 2019 accounted for a staggering €1.5 trillion. That was before the significant M&A activity that has ensued over the course of the year – such as Allfunds’ acquisition of the Credit Suisse platform with some €115 billion, and Embark’s acquisition of Zurich’s platform just last month.
Arun Sarwal, CEO of FundsLibrary, says: “As we all know, Platforms are a scale game and once consolidation starts it creates a momentum. We expect some seismic consolidation moves in 2020 with new names joining the top ten leading to a group of 2-3 pulling away from the rest.”
2. Proliferation of zero fee funds
The funds market is changing. Investors want value for money from their funds and trust in star managers has been eroded.
Whilst ETFs have made investing in funds more accessible, people don’t necessarily feel they should pay for passive investment strategies – especially younger investors, who are being targeted by an increasing number of alternative fintech firms.
So, some fund groups have been slashing fees. Fidelity led the move and was then followed by Vanguard’s move to reduce the charges on a range of ETFs and index funds. In the US, the result has been the launch of the zero-fee funds, with some ETFs stripped of their fees entirely. While currently the regulatory environment on this side of the Atlantic makes this difficult, watch this space: we are never that far behind and zero-fee funds will hit European shores sooner rather than later.
Arun says: “Now that we have the “Z” word in the asset management lexicon – its proliferation is inevitable. If it leads to an alignment between cost incurred by provider, performance achieved by the asset manager and return to the investor it probably makes more sense than it first appears to?”
3. Asian acquisition of a European fund manager
US asset managers have been on regular buying sprees to acquire European asset managers. Several of the largest managers in Europe are now part of American stables.
China is poised to become the world’s largest asset management market after the US by the end of this year. Chinese asset managers have become big enough in their own right to now wish to globalise and to acquire asset management skills and business outside China. In 2016, China Post Global (CPG) acquired the ETF business of Royal Bank of Scotland, giving it a foothold in Europe. In 2017, Legend Holdings, which owns computer maker Lenovo, bought Banque Internationale a Luxembourg (BIL) for €1.48 billion and has plans to grow international wealth management.
Arun says: “My sense is that 2020 will be the year that will see the announcement of an acquisition of a mainstream asset manager by a Chinese institution. Europe is a competitive market and rather than trying to build a business here organically, Chinese investment houses will seek acquisitions as they seek to diversify globally.”
4. The great wealth transfer
In the last couple of decades, the developed world’s affluence has grown hand in hand with its ageing population. We are now on the cusp of the largest wealth transfer between generations of all time. In the next 10 years alone, this transfer is estimated to be to be in the region of €10 trillion globally.
To thrive, the investment industry – including intermediaries – needs to ensure it appeals to the next generation who stand to inherit this shifting pool of wealth. We expect 2020 to be the year when the topic of inter-generational wealth transfer moves from the occasional report and trade magazine column onto the strategic agenda of asset managers, wealth managers and intermediaries. Firms will need to focus strategies and effectively implement their plans to be in the position to capture this huge base of assets on the move.
Arun says: “The next generation of investors have different expectations. Firms that fail to understand that this inheriting generation have different priorities to their parents, particularly higher expectations around ESG, and the use of technology for investing, tracking and accessing their money, increasingly run the risk of losing assets to those that do.”
Read more about the challenges surrounding ESG in our latest insight: “What exactly is ESG”?
5. A new era of accountability
Next year will be the start of a new era of accountability. In fact, it comes sooner than that, with the extension of the SMCR regulation (Senior Managers and Certification Regime), which currently covers banks and insurers, applicable to all regulated firms from this December.
This regulation puts a spotlight on individual accountability and team cultural values and is a real opportunity for improved governance across the industry. The primary purpose is not enforcement but to encourage firms and their staff to take greater responsibility for their actions. There is a sense that it is already encouraging senior management to exercise greater responsibility for decision-making, simplifying organisational complexity and actively taking steps to improve corporate culture and values.
The goal of SMCR is to reduce harm to consumers and strengthen market integrity by creating a system that enables firms and regulators to hold individuals to account, replacing the approved persons regime, which has been in place for almost two decades.
Arun says: “SMCR is a positive move. For the industry to get the best out of this regulation it must follow the advice from the FCA and not to treat it as an obligatory “compliance thing”. Instead use it drive cultural change that puts the onus on leaders to do the right thing for their business and their customers.”
2020 promises to be another exciting, but demanding year for the investment industry.
With relationships with over 700 asset managers, FundsLibrary is well placed to support you with your fund data management and related regulatory needs. To find out how we can help you please contact us on +44 117 313 1670 or email us.
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All figures correct as at 30.06.2020.