FundForum 2012 LIVE: CEOs see threats and opportunities in euro crisis
The problems of the Eurozone offer both threats and opportunities to the asset management industry, according to Schroders executive vice-chairman Massimo Tosato, a member of the first CEO plenary panel at FundForum International 2012.
Tosato said that although the euro crisis was “a threat to asset management in the short term”, precisely because of the difficulties faced by governments, the need to grow assets prompted by the crisis would also create opportunities.
According to Jamie Hammond, CEO for Europe at Franklin Templeton, the euro crisis should be viewed more as a political than a fiscal issue to be resolved. “From an asset-raising viewpoint, we’re seeing flows into global and emerging products from European institutional investors,” he said.
Jim McCaughan, chief executive of Principal Global Investors, believes that “problems like the eurozone will take years to resolve. I hear people saying things will be resolved in weeks – they won’t.” However, he added that disciplined rebalancing would enable investors to capitalise on the current market dislocation.
Polled by chairman Jervis Smith of Citi’s global transaction services, the panel’s consensus was that there was ‘no way” the sovereign debt crisis would be over within a year, and probably not even in three years, although most members believed it would be resolved within five years. However, they were unanimous that the European asset market was worth pursuing, and a floor vote was 80 per cent in favour.
The panellists doubted whether commission payments to intermediaries would disappear within the next three years. Tosato said the most likely outcome of the MiFID review would be the banning of commission for independent advice, “but not for restricted advice”.
Thomas Ruschen, global head of key account management at DWS, said: “A lot of uncertainty exists, depending on what the regulators do, so I think we’ll see different models being tested.” McCaughan suggested that funds might be allowed to pay commission in some countries but not in others.
“This transition toward potentially not paying commission is a very powerful development for us,” said Greg Ehret, CEO for EMEA at State Street Global Advisors. Added Tosato: “If we go for full transparency and ban commission, there must be a level playing field across all products that an investor can buy.”
The audience was split roughly equally on whether the abolition of commission on the sale of mutual funds would make fund management better value for money, with 37 per cent voting yes and 32 per cent no.
The panel were mixed on whether investors were getting value from fund managers. McCaughan said that with clients buying beta products, too many firms “have their heads in the sand”.
Hammond said that more of Franklin Templeton’s clients were asking for focused alpha-generating strategies. According to McCaughan, the choice is between giving clients solutions designed to produce the outcomes they desire, or to provide them with the ingredients to create those outcomes. He said his firm would focus going forward on yield-based assets and alternative strategies, and added: “We see a lot of growth in emerging markets, which I suspect is here to stay.”
Hendrik de Toit, CEO of Investec Asset Management, said firms needed to focus on their core competencies in asset classes, adding: “If you try to play everywhere no matter how good you are, you’ll be destroyed.”
Said Hammond: “In emerging markets there are lots of opportunities, helped by the rise of the middle classes in Asia and Latin America. Also, thanks to globalisation, people are waking up to opportunities around the world and the different asset classes available.”
Ruschen said income-related products remained successful, and DWS would continue to push in that area. However, de Toit argued that to avoid creating another credit risk event, “the lure of high-yield income products needs to be very carefully managed”.
Asked what would be the best-performing asset class in 2012, the audience voted 28 per cent for emerging market equities, followed by emerging market bonds (18 per cent) and global equities (12 per cent). Funds of funds received only 1 per cent.
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