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How MiFID II could ‘accelerate’ long-term investing

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The unbundling of research costs under MiFID II could be “a very important accelerator” of long-term investing, according to Kempen Capital Management’s chief investment officer.

“There is overwhelming evidence that a long-term focus creates more value”

Lars Dijkstra, Kempen

Lars Dijkstra, whose investment teams oversee more than £45bn (€50bn) in assets, told IPE that the new rules would add to the growing trend of asset managers bringing research capabilities in-house.

Kempen earlier this year announced that it would pay for investment research from its own balance sheet rather than pass the cost on to clients, a move subsequently followed by a majority of asset managers.

“If you look at the active management industry, as an industry we don’t add value,” he said. “There is pressure on the buy side from passives to deliver value. In my view that means you have to focus on long-term, highly active, high-engagement portfolios. Probably 80-90% of sell-side research doesn’t qualify for that, which means you have to do the research yourself.”

While investment banks and other research providers are scrambling to price their offerings for a MiFID II market, Dijkstra argued that the provision of research would become a question of quality rather than price in the years ahead.

“There is overwhelming evidence that a long-term focus creates more value,” he said. The shift towards long-term investing “has been going on for the last 10 years, but MiFID could be a very important accelerator”, he added.

Analysts that focus only on the last quarter or the next quarter would get less attention, Dijkstra said, as more investors engaged with companies on a long-term basis.

The CIO added: “Most of the dialogue we want to have with companies we can do on our own. We want to have our own long-term relationship with companies. In general we would ask different questions than those relating to the next or last quarter.”

Dijkstra’s comments reflected a report published this week by Aviva Investors calling for significant reform of sell-side research provision.

The UK asset manager argued it needed to be “rational and commercial” for providers to consider long-term sustainability issues as well as short-term financial performance. It called for clients and regulators to take steps to encourage this change.

“If the buy-side makes it clear that it expects, needs and values a far greater focus on long-term sustainable research, then practice and habit will change and the sell-side will respond,” Aviva Investors said.

“It is a clear way for sell-side analysts to differentiate themselves from peers and offers a degree of protection in a fiercely competitive environment. It would align the research with the needs of long asset managers to invest over the long-term and deliver long-term performance.”

Aviva’s full report, Investment Research: Time for a Brave New World?, is available here .

How asset managers have moved

IPE is tracking asset managers’ decisions on the unbundling of MiFID II research costs based on our annual list of the Top 120 European institutional managers.

So far, 37 managers have declared their intentions, with just two planning to charge clients directly. Amundi is reviewing its plans to charge clients, while Fidelity intends to overhaul its equity fund fee structure globally.

A spokesman for APG, the asset manager for Dutch civil servants’ pension scheme ABP, said the firm was in discussions with its clients but no decision had yet been reached.

For updates/queries relating to this list, please contact nick.reeve@ipe.com .

Last updated: 6 October 2017

CompanyAUM (€m)Who pays?
BlackRock911,955Manager
Legal & General IM792,950Manager
Insight IM537,983Manager
APG443,194in discussions
Aberdeen Standard Investments393,759Manager
Amundi309,169Client*
Deutsche Asset Management230,789Manager
Goldman Sachs AM223,210Manager
UBS Asset Management169,643Manager
Schroders139,634Manager
JP Morgan Asset Management131,707Manager
AXA Investment Managers125,466Manager
Allianz Global Investors91,402Manager
HSBC Global AM90,636Manager
Robeco Group80,105Manager
Northern Trust AM67,379Manager
Union Investment63,812Manager
Vanguard Asset Management61,837Manager
Baillie Gifford & Co52,857Manager
Record Currency Management48,552Manager
Newton Investment Management43,719Manager
Aviva Investors42,856Manager
CBRE Global Investors41,000Manager
Janus Henderson Investors40,997Manager
NN Investment Partners36,382Manager
Invesco34,004Manager
Hermes Investment Management33,423Manager
Kempen Capital Management32,274Manager
Barings25,894Manager
Russell Investments24,922Manager
Fidelity International23,281Client
Franklin Templeton Investments19,440Manager
BlueBay Asset Management18,565Manager
Unigestion14,968Manager
J O Hambro Capital Management14,773Manager
T Rowe Price11,759Manager
First State Investments11,282Manager
TwentyFour AM9,175Manager

Notes: AUM figures relate to European institutional assets only, and are expressed in euros. Data from IPE’s Top 400 asset management survey, correct to 31 December 2016.

* Under review; no final decision

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