Why one size does not fit all.
Published 4th November 2020 by Chris Dell
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The global pandemic of 2020 has accelerated many changes in what we do and how we talk about it. This provides fund managers – like many others – with opportunity and challenge to which they now need to work out how best to respond. Those who recognise this new paradigm are set to benefit.
These challenges ask fundamental questions, both about what fund managers invest in, how they assess risk, and how they convey to their customers and end users- in a highly transparent way - the investment decisions they take.
Asset managers who get this right are likely to receive larger fund flows as well as be able to fulfil a variety of nuanced demands within a portfolio by providing a number of clearly differentiated and complementary funds.
Just saying a fund takes a responsible approach to investing is over-simplistic and undifferentiated. It would be like trying to sell a car purely on the fact that it is electric in a world where every provider now has an electric car! Likewise the responsible investing tag hides a multitude of interesting approaches which fund buyers need to know and understand and will influence their purchasing behaviour.
Since March 2020 we have had time to reflect on many of the fundamentals of our life, what matters to us and the way individuals, society, nature and the economy inter-react. This has created significant behaviour change which many businesses are still trying to interpret - what is referred to as the ‘new normal’. What is clear is that what consumers expect from businesses they interact with has changed for good – and we will not just go back to how it was.
While consumers, fund selectors and pension fund managers might recognise things won’t be the same again, the sector has been slow to react to and find its voice in this new world. Asset managers – and others - have been very quiet over this period.
And yet we have seen interest in and fund flows towards responsible investment funds – with global net inflows of over $71.4bn (Morningstar) between April and June. This trend is here to stay which requires us all to see these funds not as specialist but as a core part of a portfolio.
Consumers have woken up to the relationship between what they invest in - the manager and funds they select - and the impact this can have on company behaviours. Individuals see they can go beyond changing their own retail purchasing and domestic recycling habits - they can start to demand their investments meet clear social and environmental criteria too. Although the relationship between fund manager and company governance is not new, the transparency and interest shown by the end consumer is.
There is a rising demand for us to use the lessons from the pandemic as an opportunity to use investments to build a better society.
The challenge for asset managers is to redefine how they talk about their funds, and how they bring their responsible investing credentials into play across a variety of funds. They must share their views and actions through compelling and robust storytelling with their consumers and partners alike. Brands which grasp this challenge will be well placed to benefit from increasing fund flows.
Asset managers now need to show how they approach balancing the new investment equation:
Generate return from their investments + Use their investments to build a new society.
As we learn to live in this new world order, now is the time to take advantage of these new market forces and position your funds in a way that will meet an ever more inquisitive consumer and their pension fund.