This year again, the ALFI Global Distribution Conference was the place to be to get insights and precious updates on the most important developments in the fund industry around the globe. More distributors than ever before attended the conference and, as usual, to add even more value to participants, ALFI invited quality speakers and presented an interesting and diversified program. Check out the conference video report below:
The event also heralded the launch of the Distribution Achievement Awards, a festive moment, prepared and introduced by MacKayWilliams, a specialist in the analysis of investment fund distribution markets. Based on a survey of over one thousand fund selectors, the awards honoured the best distributors in the industry.
The key talking points at the ALFI Global Distribution Conference 2017 included:
Brexit: The Debate Continues
Progress on Brexit negotiations has been wanting, and this is testing the patience of investors with European and UK exposures. Time is not on the side of Brexit negotiators, but there is a firm belief that a UK crash landing out of the EU or a retreat into isolationism is in nobody’s interests.
However, there is general agreement among policymakers that the existing benefits of Single Market membership cannot apply to the UK when it becomes a third country. Despite this, Pierre Gramegna, minister of finance for Luxembourg, pointed out that Canada, Japan and the US all had successful trading links with the EU despite their non-membership of the Single Market. “It is crucial we adopt a constructive approach towards trade and finance in light of Brexit, and there are multiple models available to the UK,” said Gramegna.
An Ever Closer Union
The enthusiasm for the Capital Markets Union (CMU) is high as this expansive framework is designed to strengthen and diversify sources of financing for the EU economy and reduce SME reliance on bank funding. Architects of the CMU are looking to emulate US capital markets, where SME financing is more evenly split between ordinary investors and banks.
The Pan-European Personal Pension Product (PEPP), a voluntary pension scheme designed to create more choice for retirees, is the latest CMU initiative. Policymakers hope that as EU citizens increasingly purchase PEPPs, more capital will be unlocked providing funding for long-term investments.
“The PEPP can be ported cross-border, and this will appeal to young, mobile citizens. This is something we are very supportive of,” said Dan Waters.
The CMU will also seek to formalise a more streamlined approach to cross-border fund distribution. While harmonisation of cross-border fund distribution was solidified through UCITS IV, Waters agrees with ALFI work needs to be done to remove national regulatory barriers in areas such as marketing.
The Distributors: A Changing Model
MiFID II provisions around product governance, appropriateness tests and inducements is likely to result in European distributors refining the number of managers they work with. Some believe that this downsizing will disenfranchise boutique managers and result in distribution platforms being dominated by a handful of established, brand-name fund houses.
If distributors de-scale, investors will face restricted choice and much reduced diversification benefits. In addition, it could deprive investors of returns as a lot of academic research indicates boutique providers tend to outperform larger firms. This is mainly because boutiques can exploit niche investment or trading opportunities, something that is not always achievable at major fund management groups, said Jonathan Boyd, editorial director at Open Door Media Publications.
Where to Distribute?
UCITS has morphed into a global brand since its inception nearly 30 years ago and many believe its reach will continue to expand. Positive regulatory and economic developments in a number of markets – both developed and emerging – are helping drive this. Take Australia, for example, where ALFI successfully negotiated an AFS (Australian Financial Services) license exemption for management companies targeting the country’s institutional investors.
“Australia has the fourth biggest pension market in the world, and the sixth largest funds’ market. We have certainly seen more interest from Australian superannuation funds in UCITS due to the licensing relief,” said Jim Boynton, partner at King & Wood Mallesons.
While Hong Kong, Singapore and Taiwan have always been big buyers of UCITS, some believe that newly developed markets in the region such as Thailand and The Philippines offer potential too, spurred on by huge demographic change and a rising middle class.
Stewart Aldcroft, chairman of Cititrust limited, said UCITS were increasingly soliciting capital from retail investors in Thailand and The Philippines. “In markets such as The Philippines, where the population is spread over 7500 islands, it is crucial to work with a local partner.” However, he added other burgeoning economies – namely Indonesia and Vietnam – were still off-limits for foreign managers.
Disruption: Controlling Costs
Technology and disruption were major themes throughout the conference as the funds’ industry increasingly grapples with innovation. The growth of passive products and meddling regulatory requirements is forcing active managers to identify ways and means by which to rein in costs. Many fund managers recognise they need to make radical improvements to their technology if they are to remain competitive in today’s markets, and such efforts are being supported by forward-thinking governments including Luxembourg.
Innovations such as Blockchain and Artificial Intelligence (AI) are undergoing beta-testing, with proponents suggesting the technology could simplify archaic processes such as regulatory and investor reporting, and streamline resource-intensive and back office functions. This would ultimately help active managers drive down their overheads.
“Technology is now front and centre in asset management with growing interest in AI, machine learning, Blockchain, Reg Tech and predictive analysis. All of these concepts could enable huge efficiencies and make the industry far less capital intensive than what it is today”, said Jim Fitzpatrick, president of NICSA.
Some experts have questioned the rationale of targeting millennials with little financial literacy, advising asset managers focus their marketing efforts on more reliable and affluent client prospects. Such arguments are short-sighted as they could put asset managers in commercial jeopardy over the coming years.
“In 2020, millennials will comprise 60% of the world, and they will be contributing to savings and pension funds. In 2015, investable assets among millennials stood at $17 trillion, but this will increase to $24 trillion by 2020,” said Bob Kneip, founder at KNEIP. Millennials will also inherit record amounts of wealth from their baby-boomer parents and relatives over the coming decades, and this money needs to be invested if it is to accumulate.
Others believe online robo-advice, a product that is low cost and easily accessible, is a novel tool to pique millennial interest in asset management. A study produced by Calastone, for example, found 42% of respondents expected robo-advice to be the dominant distribution channel for raising assets from mass retail. But the immediate success of robo-advisers is not assured, mainly due to poor brand awareness.
Distribution Achievement Awards
On the final day of the ALFI Global Distribution Conference, MackayWilliams, the independent mutual fund market analysis and research company, presented the inaugural MackayWilliams Distribution Achievement Awards. “Our focus for these awards was on three functions that are now critical to a group’s ability to differentiate itself and stand out from the crowd: Brand, Sales Services and Marketing”, said Diana Mackay, joint CEO of MackayWilliams.
Be it in terms of regulatory overstretch, geopolitical evolutions or digital disruption, one thing is for sure: change is happening on a number of fronts in the funds’ world. Opportunities and challenges lie ahead and the fund management community is in no mood for complacency. So don’t miss our next year conference to see where evolution will lead us!
The Conference on Twitter – #ALFIGlobal17
The Conference in pictures
The Global Distribution Conference represented an excellent opportunity for participants to learn, exchange, network and get inspired. To get a taste of what the atmosphere was like at the event, take a look at the picture report.