Our clients’ investment needs are changing as the global landscape evolves.
A number of key themes are driving change in the asset management industry.
In recent years the global macro environment has been dominated by limited global growth and an expectation that interest rates will be kept lower for longer. Political upheaval and populist movements are driving uncertainty across the globe, along with fears over the limitations of monetary and fiscal policies implemented by central banks.
Although equity markets were strong at the end of 2016, investors are feeling the effects of a lower return world and we are seeing shifts in product demand. Increasingly, our clients are looking for solutions with specific outcomes to meet their investment objectives, rather than the component building blocks of a wider portfolio. To ensure we are at the forefront of meeting evolving client needs we have increased our operational focus on the products we provide, more information on which can be found in chapter Asset Management – Product.
The search for higher returns has also driven a shift in asset allocation and product demand. As asset classes have become more correlated and offered lower returns, clients’ fee sensitivity has increased and many have allocated towards passive investments. We have seen sustained increased demand for income products and we have evolved our franchise across equity, fixed income and multi-asset products to address this. We have also seen reduced client demand for traditional asset classes and greater interest in higher returning areas, such as private assets.
Above all else, the current macro environment means a greater focus on value for money, and the onus is upon us to demonstrate that we are consistently delivering for all of our clients.
Over recent decades, we have seen enormous shifts in demographics globally. People are living longer and many developed countries are facing ageing populations, with significant implications for retirement planning. As governments find it increasingly challenging to provide financial security, the responsibility for savings has shifted to the individual. Pension schemes are obliged to look for new and more efficient ways to match liabilities as longevity increases.
This year we have developed a stand alone, asset class agnostic, Solutions business dedicated to providing our clients with the investment solutions to help them achieve their changing financial objectives. We have a long-established and growing liability driven investment* capability in addition to a number of strategies which provide innovative investment products during the accumulation phase.
Nowhere has seen greater effects of demographic changes than Asia Pacific. A burgeoning middle class and second-generation wealth accumulation will likely alter our clients’ approach to investing. With over £96 billion of assets under management (AUM) from clients in Asia Pacific and with a local presence established in many financial centres for over 40 years, we are well placed to continue to build our clients’ future prosperity.
Many industries across the globe have been transformed by improvements in technology and asset management will be no exception. Increasingly sophisticated technology is changing every aspect of asset management, from how we interact with our clients, to how we conduct research, execute trades and manage risks.
We aim to be at the forefront of these changes and will continue to make significant investments in technology throughout our business.
Within Investment, our Data Insights team has developed well. Using the latest in data science technology to interpret new and non-traditional data sets, the team provides fresh and diverse insights which complement the skills of our fund managers and analysts. We have also widened the application of technology across the business to improve efficiency and change how we work on a day-to-day basis. A significant upgrade to our front office technology systems will drive further efficiencies through increased end-to-end processing across the globe. We have also changed our approach to technology projects so that innovations are implemented much sooner across the business, improving productivity and efficiency.
Technology is also changing how we interact with our clients across all distribution channels. In 2016, we made a strategic investment in Benchmark Capital, a UK-based technology-led, high quality adviser support business.
Financial services, including asset management, have come under increased scrutiny from regulators around the world and the business models of many firms have been forced to evolve. In the UK, we have seen the publication of the FCA’s interim report on its asset management market study, which is looking at ways to improve client outcomes across the entire industry.
At Schroders, we welcome regulation that increases transparency, improves trust and promotes better outcomes for clients. As an active investment manager, we believe that we have an important role to play in driving better outcomes for our clients and society as a whole. We believe that we have the responsibility to demonstrate that we provide value for money for our clients and act with integrity as good stewards of capital. Focusing on the sustainability of investments and applying influence as active shareholders adds significant value to our clients’ portfolios. We have a team dedicated to environmental, social and governance issues. More information can be found in chapter Our impact.
Whilst increased regulation can bring challenges and increase operational complexity, it also provides opportunity. As banks’ activities have declined, particularly in credit and more illiquid fixed income, asset managers can expand their operations. We have expanded our investment capabilities in these areas this year, acquiring a new securitised credit team based in New York, and have taken an associate interest in NEOS Finance Group, a Dutch direct-lending business.
* See glossary.