Skip to main content

The time is now for investment managers to proactively demonstrate value (…the FCA says so too!)

29 April 2020

By Henry Adefope, Associate Partner

Global markets have been on a roller-coaster since New Year, experiencing record falls - it’s been tough to say the least. Many portfolio managers, particularly the more junior ones, have never dealt with a systemic market event before - most of the fund managers I know began their professional careers well after the global financial crash of 08/09 - and now suddenly, they’re expected to be pandemic experts. Even the most seasoned fund managers will be grappling with how to ride this storm.

The longest bull market in history ran for almost a decade from the bottom of the global financial crisis (GFC), meaning many investment managers have been on a winning streak for a while. The shock of the pandemic and its impact on markets and investor psychology is a serious blow and has blindsided investment professionals.

But despite the immense pressure and unimaginable circumstances, this pandemic can and should be viewed as an opportunity for asset managers to increase their value in the eyes of stakeholders - primarily investors and policymakers - if they are to secure and even grow, assets under management (AUM). 

Following the global financial crisis, the public, media, politicians and regulators alike, quite rightly, demanded new levels of transparency from asset managers. This forced them to disclose absolutely everything to do with client servicing and the FCA now requires asset managers to outline their value to investors literally in the form of ‘value statements’. And while these regulatory requirements have added to the administrative burden, the systems that asset managers have put in place to meet the necessary criteria gave them the opportunity to boost their resilience and help them weather this storm by giving them the tools to demonstrate their value and role in society.

Generating inflows appears a sizeable challenge to a sector that has been faced with decreasing assets under management ever since the pandemic took hold. However, the fund managers that have been generating positive inflows (there are some) are those that have adopted the strategy of going on the offensive.  

Reminding the public of the importance of their role in society is crucial (the sector plays a vital role in the UK’s economy). Asset managers are custodians of the savings and pensions of millions of people, making decisions for them that will affect their financial well-being.

This suggests, that a crisis is an essential time for asset managers to really prove their unique selling points and highlight the value they provide investors and their wider ecosystems, particularly during a volatile period such as this (a point I have highlighted in the past). The FCA have confirmed as much – its recently legislated ‘value for money assessment’ exercise makes it clear that value for money is far reaching; not just related to fees and charges.  

Sustainability experts, private equity, boutique challengers, contrarians, active and sophisticated passive managers all have an opportunity to reiterate their wider purpose here and double down on their brand values.   

The measures taken by regulators over the last decade have had a fantastic impact on the sector - risk management, suitability, appropriateness, full disclosure and client communication are the values firms are increasingly judged by. Many asset managers have positively harnessed the new rules – as an investor myself, I’ve certainty been reassured by my providers. But at the same time reassurance will not make me trust them more and crucially, invest more. Telling me that you may somehow be able to beat this unprecedented crisis, will. If I wanted a majority cash-weighted portfolio or wanted to freely realise paper losses, my money would not be with a fund provider. Only by beating (or at least intending to beat or shoulder the effects of) this pandemic-affected market, will fund managers be able to reaffirm the deserved value that the post-GFC environment dragged into the spotlight.

Some business sectors can afford to stand down, hold the fort and consolidate, but the investment sector is not one of them. The AUM war post-Covid-19, may likely be won by those fund managers that double down on the value they add during this unprecedented time.

It’s arguable that the long-term growth drivers of many companies will be unaffected by the virus – some sector indices, such as healthcare and technology for example, have higher valuations than last year - and it’s important investment managers actively communicate this in no uncertain terms to their visibly shaken stakeholders. Markets grow over the long run, the investment firms that stick to their long-term principles and put their head over the parapet in the short-term, should be in the position to help their investors reap the long-term gains.