Democratising investment: An opportunity but also challenges to face
For several years now, asset management companies have sought to diversify their investor targets by looking to new and more open markets than just the clientele of businesses and asset owners.
On the one hand, we are all aware that easier access to new and effective financial products is likely to attract another class of investor, young and liable to strengthen the existing client base. However, on the other hand, we are also observing a greater desire for diversification from traditional investors, who are seeking both performance and access to markets thus far seen as niche or reserved for a few experts. Amongst these new market segments are Private Management clients, family offices and other wealthy individuals and entrepreneurs. These clients are also looking to access new types of products (based on Blockchain, non-listed assets or index funds).
We’re talking about private equity funds, infrastructures, real-estate funds and even crypto products. In terms of operations, we’re talking about a 55% increase in transactions in private equity1 for 4.8 billion in assets invested in France2. And Schroders confirms the arrival of new investors3, a third of whom are estimated to be in the 25-35 age bracket.
This is a real opportunity that asset management firms need to seize, at a time when inflation is causing investors to review their savings and financial placement strategies.
However, this market development comes with constraints that represent conditions for success, discussed at length within the industry:
These new clients want to “give meaning to their assets”; they therefore need to be offered investments that are environmentally sound and incorporate socially responsible criteria when choosing assets to invest in. To do this, we can now rely on numerous initiatives adopted since 2008 (Principles for Responsible Investment, Principles for Positive Impact Finance, Net-Zero Banking alliance) to which the Societe Generale group has signed up and for which the Group has often played a founding role.
Beyond ESG4 criteria, asset managers will need to further educate people about new types of investment and make sure they provide them within a secure framework for the investor. We knew this in the past with leveraged and structured products; we’re seeing it again today with cryptocurrencies and new offers based on Blockchain technology. New investors need to understand these products, assess the level of risk to which they are exposed, and of course there will be a need to comply with MiFID regulations aimed at ensuring that investments match investors’ understanding of risk. There are currently means of improving management reports’ quality of production, or offering crypto-asset solutions in a perfectly regulated environment (from the point of view of both the players concerned, with regulations such as that pertaining to Digital Asset Service Providers in France (called PSAN in France) and more importantly MiCA regulations or the future pilot regime that will enable European rules to be harmonised, thus making them easier to understand for investors in the European Union).
All these issues require a new technological environment, which asset management firms will have to provide, as will the service providers to whom they outsource a substantial portion of day-to-day activities. It will notably mean managing a larger number of unitholders and ensuring the distribution of these new financial products in networks (physical or online) that support them, including the information that has to be provided to investors. We are thus seeing the transformation of what was previously a B2B model into a B2B2B or B2B2C distribution model. It is based as much on new client platforms offering “investor portals” or more generally “white label” solutions on which asset managers can rely. As an illustration, this is what Societe Generale Securities Services offers with its ETF fund distribution portal or the help provided to launch UCITS funds with multiple compartments.
Lastly, and this remains a major challenge enabling ESG solutions to be ramped up, you need to have enriched data assets made available in new (Cloud-type) solutions. This will make it possible both to strengthen production capacity and then make more detailed reporting available at a greater frequency, but more importantly to facilitate the fund manager’s transformation into an asset manager 2.0 capable of understanding and controlling data and models that could be based on Artificial Intelligence technologies, and especially being able to distribute their products to a new and more tech-savvy clientele.
Article published in Funds Europe in December 2022.
Yvan Mirochnikoff, Head of Digital Solutions - Societe Generale Securities Services
1 Démocratisation du private equity: un moteur de performance pour la classe d’actifs ? (latribune.fr)
2 La démocratisation du private equity est en route | Capital Finance (lesechos.fr)
3 Comment fonctionnera la démocratisation des actifs non cotés ? - Asset management - Schroders
4 ESG : Environment, Social and Governance