Shaping the future of Asset and Wealth Management (AWM)

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PwC AWM Conference 2019 – Amsterdam

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08/11/2019 |
  • Steven Libby

Over two days in Amsterdam, PwC gathered 450 senior AWM professionals from around the world, representing 45+% of the world’s assets under management (AuM) valued at USD40+ trillion, to deliberate in panels, sessions and deep dives on investor needs and concerns, and how best to meet their lifelong, and inter-generational needs for financial security.

Welcome to - “a change of era”
Patrick Heisen, AWM Leader (PwC Netherlands) welcomed the delegates to the Netherlands as one of the most open economies in the world, and among the best countries for technology and innovation, and where pension funds dominate the institutional investment landscape.

In the context of climate change, shifts in global economic power, demographic and social change, and technological breakthroughs, keynote speaker Gerard van Olphen, CEO of APG, working for over 21,000 employers with EUR 529 billion (August 2019) in pension assets, and providing pensions for one in five families in the Netherlands, spoke about our times as being not merely in an era of change, but representing a change of era. He recognised that, on the one hand, customers are more critical and demand better quality and service, whereas on the other,  they want to pay minimal fees to, rightly, maximise their pension benefits.

The CEO panel, chaired by Olwyn Alexander (PwC Global Asset & Wealth Management Leader) touched on the necessity for asset managers to support greater retirement investment, while recognising the importance of improving investing literacy. Similarly, CFOs facing mounting margin pressure and increasingly challenging markets considered the best way to prepare their organisations for operational resilience.

According to PwC’s recent CEO Pulse survey, 65% of CEOs say their companies faced a crisis in the past 3 years and 73% believe they will face another in the coming 3 years. Independent directors presented lessons learned with the general advice that companies that fare best in crisis have a sound plan in place at both the management and board level.

What do “Investors of tomorrow” look like?
In March 2018, the European Commission adopted an action plan to integrate Environmental, Social and Governance (ESG) considerations for sustainable growth. A “deep dive” explored the required changes in processes, transparency, ESG risks and impact measurement for products promoting ESG characteristics. As for “Investors of tomorrow” they are characterised by being technologically savvy, environmentally conscious and desiring a greater level of social media engagement. They will expect products to meet their environmental and social preferences and needs

For all that has been debated and disputed over at least the past three and a half years, the panel on the “AWM industry beyond Brexit” looked at how asset management players are no longer waiting for an outcome in the UK to ensure that businesses will function effectively to serve investors needs.

The AWM industry has been consistently told that it is a laggard and needs to embrace transformation. The urgent imperative is to adapt or die. Tangible advice came from the session on how technology is shaping the future of the global Asset Management industry, and what key changes Asset Managers, Owners and Servicers can make to benefit from the opportunities, and survive the disruption that emerging technologies, AI and data analytics bring.

Leaders preparing for tomorrow's workforce face the twin challenges of producing growth, and preparing for the new, and often unknown, opportunities that the future will bring. A deeper question for the astute leader is “How can I deliver great performance while helping our people thrive?” Despite the uncertainty, this needs to be transparently articulated in plans that show how people can take on new and augmented roles. For the AWM sector, apart from attracting and retaining the best talent, “Upskilling your People for a Digital World” was widely agreed as a fundamental imperative in the industry.

The theme of talent was also discussed during the interview with Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA). ESMA is an independent EU Authority that works to safeguard the stability of the European Union's financial system by enhancing the protection of investors and promoting stable and orderly financial markets. Steven talked about the priorities of ESMA for the coming months, and in particular its clear focus on transparency and the regulations aiming to ensure proper functioning of the European markets to facilitate investment.

Rebuilding trust in the industry for a sustainable future
Co-creation is used as a means to collaboratively develop new business models, products and services with customers, clients, trading partners or other parts of the same enterprise or venture. Co-creation sessions touched on sustainability of the AM industry, value for money and workforce of the future. Consensus on rebuilding trust in the industry to ensure that investment needs are properly served and that it has a sustainable future were confirmed. Specific agreed-upon actions will now be taken forward.

Whereas being aligned with investor needs and meeting their expectations has to be the purpose of the industry, the 2019 PwC report (Asset and Wealth Management Revolution: Investor Perspectives – Rethinking purpose and performance) reveals misalignments.

The top 3 shared priorities of the surveyed 750 institutional investors and 10,000 retail investors from around the world were risk return, the macro economic and political environment, and Environmental, Social and Governance (ESG) considerations. This is understandable given investor needs for long-term financial security in the context of global climate change impact and geopolitical stresses.

Priorities of institutional and retail investors revealed differences in the importance they place on relationships and operations. For institutional investors operations are paramount, and relationships least so. For retail investors, it is the opposite. Retail investors are more concerned about their risk returns and uncontrollable global macro economic and political conditions, while all investors ranked Environmental, Social and Governance (ESG) as one of the top priorities, with the good news that asset managers are responding to this imperative.

Regionally, in North America and Europe, investors are most concerned about risk return, the macro economic and political environment followed by ESG considerations, raising the bar on how investing must consider non-financial information. For APAC, and the rest of the world, the outstanding concern is about the macro economic and political environment.

Meanwhile, as the 10-year bull run in listed equities shows signs of weakening, asset managers, to retain existing AuM and meet investor expectations, need to consider expanding into growth strategies such as private equity, real estate, infrastructure and credit.  As stated by keynote speaker James Pomeroy, global economist from HSBC, growth will also come from the disrupted economy, but traditional financial measurements may no longer capture the data required for sound investment.

Looking to Latin America and Asia
One consideration could also be to look at LatAm as a growth destination. For example, the combined, Latin America Institutional, HNWI, Mass Affluent and Retails segments will represent a USD 14,7 trillion investable market by 2025.  LatAm Alternatives AuM should more than double between 2018 and 2025 achieving the expected mark of USD 575 billion, Infrastructure funds AuM will grow the fastest and Private Equity will remain the major asset class among alternatives.

Not to be overlooked are the titans of the Asian economies, namely China and India, emerging new tiger economies, such as Vietnam, Kazakhstan, Sri Lanka, and the ASEAN stalwarts such as Malaysia, Thailand and Indonesia. As the AM industry deepens in the region, it surfaces different investor classes and fund centres positioning themselves as access points. The salient trends are outlined in PwC’s Asia-Pacific AWM 2025 report .

In closing, huge opportunities lie ahead for the AWM industry even as it responds to evolving technology, fee and margin pressure, sustainable investing and changing investor expectations.  Participants understand that alignment is important as they stand to be judged by the sincerity of their intentions and the credibility of their actions, and how they deliver on their ambitions.

As Steven Libby, EMEA AWM Leader, put it, “Our clients want us to read the global shifts and provide long-term solutions and advice. They want to build security for their investors planning for retirement, and to sustain it for their descendents. Rather than fearing job-loss to automation and AI, these are the forces that we must harness to safeguard and grow assets. He further challenged that we must work hard to shape the industry, together.”

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