New to FundForum International in 2017 and in association with Association of Professional Fund Investors, the Fund Buyers Academy will feature seminars exploring best practice aspects of Diversification 2.0 with peers from across Europe. In this post, JB Beckett, U.K. Lead APFI delves deeper into the concept of diversification 2.0.
Why 'Diversification 2.0'? 2017 perhaps marks a watershed moment for the professional fund investor. The first year whereby the long-term viability of the profession hangs in a 50:50 balance. It reflects the paradigm shift both at an investment and technological level. I pose this based on:
- There have never been more fund buyers than now; advisers are moving into the asset space but there are also growing signs of consolidation. Cannibalisation of the value chain, once partners become competitors
- Fiduciary regulation is impacting the very relationship between fund managers and buyers. Meanwhile professional fund investors are under increasing pressure to demonstrate their own add-value and meet the rising industry and technology challenge
- Active fund managers are in retreat in the United States as index based products dominate new net flows, is Europe next? Blockchain advances look set to make Exchange Traded Funds more efficient
- Many approaches to Diversification have underperformed; yet the naive 60:40 equity-bond allocation outperformed for the first time in years, challenging historical correlations and new sources of Diversification. Growing use of property, infrastructure, esoteric and illiquid asset classes by Institutional investors jar with UCITS
- Rising asset concentration into a shrinking pool of supertanker funds as innovative boutiques struggle to survive, any move to tied status will increase this trend
- Rising geopolitical tension, populism, nationalism and a threat to globalisation and global trade
- The use of complex strategies for retail investors looks under threat from MiFID2. The idea of MiFID2 client targeting looks fraught with trappings
- The re-pricing of inflation and interest rates. Central bank actions are diverging; US interest rates look set to rise; yet European debt is divergent and increasingly illiquid due to the ECB and long-term lock-ins
- Advances in fundamental indexing challenge style-based active managers while complexity in Alternative Liquids strategies has not always produced desired outcome.
- Investors are living longer and in need of more income, the race for yield may produce unwelcome risks for the time-starved fund buyer and allocator. Outside of the elite, each subsequent generation of workers will be poorer than their parents. Wage inflation, globally, has been near stagnant since 2008. The symptoms are falling trust and race to the bottom on cost
Meanwhile Fintech is becoming ever more complex and pervasive, both enabler and disrupter. It is in this New Fund Order that we created Fund Buyer Academy, a platform to debate the issues under our theme of 'Diversification 2.0', in association with the Association of Professional Fund Investors, showcasing new solutions and tools for today's fund buyer. Join us.