Tomorrow’s development models are at the European Investor Summit!
Our world is complex; solutions require spending time understanding all stakeholders and building consistent value chains with them; so many of the most eminent institutions have come together at Societe Generale’s European Investor Summit to debate all these sensitive issues.
2018’s gloomy final quarter was the first significant decline since the 2008 crisis showing negative returns and outflows ending with job cuts and uncertainties for business prospects. This warning strongly impacted the Investment Industry! A year later, 2019 should see a return to the positive trend observed over the last decade for investors and asset managers. Net inflows are likely to reverse the 4%1 decline in assets under management that cast a shadow over 2018. Will the trend remain favourable again for 2020? The environment remains particularly challenging, with continuing concerns over negative interest rates in Europe, uncertainty regarding Brexit and the impacts of the trade dispute between the US and China.
Sailing the winds of change
Nevertheless, it would be unreasonable to forget the 2018 red flag and assume that the story will continue as before. The landscape is moving very fast as a consequence of the megatrend effects that have been extensively described by all financial observers, from new technologies to new business platforms run by newcomers to provide a response to new investor behaviours. Looking forward, the Industry’s natural response in order to react to economic uncertainty, increased market volatility and sharper competition could first be to diversify its product catalogue.
In this respect, passive investment solutions on the one hand and alternative management on the other will obviously continue to gain momentum, although it is important to note that performances within those categories could be very different from one to the next: private equity and ETFs2 will continue to be fast-growing products, whereas some hedge-funds facing negative returns consequently suffer significant outflows. Improving distribution channel efficiency to better monitor sales, marketing, but also the multichannel experience with personalised access to end investors will, as always, weigh significantly in the equation.
Old pipes don’t always give the sweetest smoke
Nevertheless, it would be wrong to think that old recipes should be enough to seize opportunities and catch up with fast-moving Industry trends. The unprecedented magnitude of transformation is calling investment firms’ strategies, capabilities and operating models into question. Merely increasing product sales, improving distribution gains and maintaining lower operating costs will not be enough. We need to collectively rethink how we help our clients – whomever they are –, reimagine our answers to give meaning to customers’ investments and the way we deliver our services.
Green & co are the new black
To do so, we have to align asset management propositions with consumers’ increasing desire to reflect positive values such as preserving the planet, respectful development and the energy transition in their investments. In this respect, it is fair to say that it continues to be a challenge to demonstrate that sustainable investment is more sensible than looking for pure performance! Lack of standardised data on ESG3 criteria is to be blamed, as is a wide spectrum of greenwashing messages and products that contribute to discouraging the most convinced investors.
On the other hand, the belief that investments incorporating ESG3 factors outperform investments generally – especially in the long term – is gaining more and more traction and the regulatory framework is becoming more and more restrictive, pushing managers and large institutional investors to make clear commitments in this domain. In the execution phase, from intent to action, the difficulty of hiring people with financial or quantitative skills who understand sustainability issues should not be underestimated. But, in that case, one should also consider the option of dealing with partners – suchas SGSS – to shape one’s own strategy and operating model and control and communicate indicators to measure ESG3 investment efficiency.
The great tech-tonic shift
The second main lever of change to catch up with customers’ appetite for real-time transparency and interactivity is technology. It seems obvious that companies that don’t make step changes in their use of technology will not succeed. There is no business model aspect where data and analytics could not be seen as a game changer, whether it is in lowering costs thanks to Artificial Intelligence or blockchain applications, improving risk management – especially regarding liquidity, which is making the news – or sharpening decision making in investment solutions using big data. But the strongest potential probably lies in the client experience, where there are huge expectations for better access to information, many opportunities to use artificial intelligence and where firms are most lacking in technological capabilities. Technology will effectively be crucial in the coming years, which does not mean that players have time to find their way. Nothing is completely obvious in terms of technological usage, but getting it right will require the setting up, in the short term, of a new strategic agenda and significant investment to further scale-up efficiency and ultimately transform the client relationship.
Welcome to the EIS!
Everybody appreciates how substantial the challenge is for our financial community, whatever their place in the value chain. At SGSS, we thus feel that it is paramount to take time to share ideas, convictions and concerns among various players. I’m delighted that so many of the most eminent institutions have come together at Societe Generale’s European Investor Summit to debate all these sensitive issues. Our world is complex;solutions require spending time understanding all stakeholders and building consistent value chains with them. This event’s high attendance confirms that we share the same views and objectives.
(1) Source: BCG 2019. (2) Exchange Traded Funds.(3) Environmental, Social, and Governance.
David Abitbol is appointed Head of SGSS in January 2019. David has more than 20 years of experience in global markets. He has been Chief Operating Officer for Societe Generale Asia Pacific and Chief Executive of Societe Generale Hong Kong Branch, since March 2014. He joined the bank in 1992 within the Group Finance division as an actuary then took up the role as Head of Financial studies and Funding Operations within the Asset and Liability Management Department. In 1997,