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Special Report

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Rebuilding Trust

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Are we out of the woods? The headlines would suggest that Asia is continuing to demonstrate the greatest resilience in the face of the worst global recession for decades. Singapore has ended its recessionary run, Shanghai and Hong Kong shares have been robust as China continues to defy expectations of a slowdown. Even Japan has called the end of the slump.

While we may be over the worst of the immediate effects of the financial crisis, as Bob Dylan wrote, “things have changed’. In this edition of IPA, we have sought to reflect how the asset management industry is responding to the realisation that it needs to rebuild trust among its client base. Not only that, those clients are looking for new ideas, having lost confidence in their traditional ways of investing. ING Investment Management’s CEO Alan Harden says, “Right now, clients are looking for simple, low risk products and the industry is having to get back to some of the basic things that investment management is supposed to deliver.”

The renewed focus on the client’s needs is manifested in different ways. Bank of New York Mellon has set up a new committee to focus on the evolving needs of sovereign wealth funds. Russell Investments has established a global Innovation Council, a 15-member team that will proactively pursue advancements in products, services, processes and methodologies in support of the firm’s clients worldwide. CEO Andrew Doman says: “Clients around the world need our intellectual capital and thought leadership now, more than ever. The objective of this council is nothing short of leading our clients and the whole asset management industry forward.”

According to research by Watson Wyatt, increasing pressure on profitability at active asset management firms is likely to cause considerable changes in the industry, and asset owners are urged to prepare accordingly.

Naomi Denning, Watson Wyatt’s Head of Investment Consulting for Asia Pacific, says: “If returns stabilise now, then for pension funds and other institutional investors the worst of the pain is over. But for asset managers the pain is just starting. Earnings for 2008 were down between 10 and 15% per cent from 2007; that is beginning to look attractive for 2009.”

The ad valorem fee basis on which the industry in centred means that profits will remain under pressure as long as market returns and new inflows remain low. Denning says there is little trustees can do about consolidation in the asset management industry, but among the actions they can take is to revisit whether the current extent of active management remains appropriate for their fund: “We do believe that pursuing active returns is a worthwhile activity,” says Denning, “provided that the resources exist to have a competitive advantage in identifying, hiring and terminating active managers. Equally, we believe in the virtues of passive management and continue to advise that this is the more appropriate route for the resource-constrained funds. That said, we are mindful of the fact that passive management firms are not immune from many of the business issues facing active managers.”

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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