Uncertain environment

“We are living through a monetary super-cycle and hopefully you have been able to raise money and earnings, because it was a very easy time, but now the question is ‘where to put this money?’” said Marcel Renné, CEO of the asset manager FERI. He was referring to the recent period of loose monetary policy, with this now being challenged by the return of inflation. 
Uncertainty has been increased by the Russian attack on Ukraine, the panel noted. After expressing her regret for the human cost of the war, Hanneke Smits, CEO of BNY Mellon Investment Management said: “it will really challenge what is already a very fragile world economy.” She spoke of increased uncertainty and the need to diversify and hedge in the face of these complexities.” 

Sophisticated tools

Growing sophistication of liquidity management tools will help, said Marc-André Bechet, Deputy Director General of ALFI. “Luxembourg is extremely well positioned as we have been using these tools for years.” He added that ALFI is working with regulators and policy makers on boosting these capabilities, specifically regarding so called “side pockets” which allow riskier or illiquid assets to be segregated. “You should expect something coming up very soon from policymakers,” he said.

Client driven sustainability

“Clients have been shifting towards outcome-oriented investing with more certainty of return,” said Hanneke Smits, CEO of BNY Mellon Investment Management. “This means more absolute return investing, income investing, as well as the rise of ESG.” 
“After UCITS and AIFMD, sustainability is probably the biggest change ever in regulation,” said Mr Bechet. The panel agreed that this was more than a regulatory drive, but a bottom-up demand from clients which are increasingly values oriented investors. “We've seen as real societal shift in clients’ minds away from shareholder primacy to purpose driven investing,” explained Mr Renné.

ESG challenges for funds & regulators

As for the goal of regulation itself, “we would be mistaken for thinking, for example, that an article eight fund is actually green,” noted Mr Bechet. He said the key motivation for the drafting of SFDR and the taxonomy is for investment to be made to increase the sustainability of “brown” activities and assets. 
This work has only just begun. “Critics say that the regulation is not perfect, but we just need to get moving and make this happen,” he said. As well, the panel noted the challenge for global regulators to achieve harmonised understanding and use of ESG terminology and data to maximise consistent reporting standards that can inform client choices and investment decisions.

Changing technology focus

Given these market shift, the need to invest in staff upskilling and new technology has increased. “A lot of other business were faster than us on technology,” said Mr Renné, suggesting there was ground to be made up. Ms Smits sees greater technological focus moving to the front office, with skilled professionals increasingly using AI driven tools to guide investment research and portfolio construction. 
Costs are a constant challenge, but recent history shows how this can be confronted. “10-15 years ago, we had equity funds charging 200 basis point fees, but today this can go down to 50,” said Mr Bechet, a move that is to a large extent due to investment in back and middle office technology.
The panel agreed that human resources considerations remain a major challenge. “This is not something where it is easy to find solutions at company level, you need something at a broader level,” said Mr Bechet. Part of the solution is educating society about the valuable work being done by the sector channel money to the real economy, with particular reference to the sustainability agenda.