The Summit Round-Up Report
What were the main themes and discussion points arising from Summit Day at FundForum International 2014? Watch our video round-up, and read more about the highlights of the day below, as we dissect the key points raised during the Summit.
The Synopsis
The Global Distribution Summit Day challenged participants on the new course of actions in order to initiate to challenge status quo and create new solutions. “How can we use the industry annual marketing budget of 125ml to better reach new younger savers?” questioned Hazel Pitchers, head of retail marketing at BlackRock. “How can we drive long term savings to long term investments, to impact investments” asked Citi Private Banks’ Head of Managed Investments. 47% of retail investors claim to listen to their own investment thoughts, much more than advisers!
“Only smart products pay” and “Put your clients’ voice first” says Diana Mackay, the long experienced market observer. “Target the top 5 Funds of funds in the UK if you wish to successfully distribute your funds” says Fundscape. “Be an international player to expand your market” advised Holly Mackay to distribution platforms. How does the man in the street choose his saving plans? Web financial planners are growing rapidly and challenge the big asset managers. “Some sites might not be sophisticated but they do the job” says Holly Mackay, of The Platforum.
Exploring New Markets has been the second key theme of the summit. New Markets with a new generation of young savers are opening up new opportunities of clients, technology and products, as well as distribution channels! Inflows are back in Emerging Markets because of strong fundamentals, says Mark Mobius at Templeton Emerging Markets. The panel on African New Frontier of Investment reminded us that “Africa is the land of opportunity for smart investors” according to Standard Chartered. Finally, wealth in China is opening up a new retail savings markets and products range of opportunities from travel agencies to healthcare, according to the expert Dr Keyu Jin.
The Key Themes Broken Down
New Investors Behaviour
BlackRock Survey
- 76,000 funds and 60% get the net inflows
- 125 million euros spent on marketing funds in Europe; what is the impact ??
- Retail customers say they are risk adverse (54% are non willing to take risk)
- misperceptions :
- measuring performances : only 10% value funds « outperforming the benchmarks »
- purpose of savings : for bad days + holiday home: not focusing on pension funding.
- possible advices : 47% value their own thoughts and 31% value financial websites: do retail investors value external advice?
Gavin Rankin, head of managed investments at Citi Private Bank : « For ultra high retail clients, investments are emotional decisions ; the risk appetite for entrepreneurs is high : they are used to take risk and are ready to take risks ; they pay for advice. »
Other issues discussed in the panel with Caspar Rock, CIO of Architas Multi Manager and Andy Brown, Head of Manager Research at Prudential :
- Do retail investors need financial education ? How? Who shall finance mass market financial education ?
- Are distributors creating a potential equity bubble by selling too many Equity Income funds ?
- Is the Asset Management sector too egocentric ? Not listening?
- If the retail does not get access anymore to financial advises, who will provide guidance ?
- Is the use of financial jargon’s moving the retail away from financial products to cash holding ?
Industrial changes for wealth management
Yuri Bender, from the Financial Times, has put his panel on the grill for 20 minutes! “Aren’t your guys too much paid”!
The participants from Millenium Associates, B Finance, Société Générale Securities Services, Jespec Kirstein, an independent consultant based in the Nordic countries, and David Ferguson CEO of Nucleus Financials, all reckon that the traditional high pay wealth manager banker does not work anymore.
- Private bankers are paid too much
- The recurrent paying model is not good
- The one to one client meeting is over: high net worth individuals don’t have the time!
So the debate started to focus on what it means to be well paid? “The Private bankers need a diet program to get slimmer and in better shape” said one participant! “Switzerland is facing an earthquake” mentioned Millenium Associates! Private banks need to provide better services + wider range of services.
Holly Mackay from The Platforum: Five future trends for Fund Platforms
The Platforum explores the active distribution platforms across Europe. As off September 2014, that represents a universe of £1,270 billion. The research divides platforms by countries with a pool of international platforms, such as AllFunds, that have an international coverage. Holly Mackay stated that the international pool is one of the fastest growing areas.
What did we learn?
- The old 80/20 rule for investment flows is now becoming the 90/10 rule!
- The big ARE getting bigger
- The top ones: Blackrock / Templeton / M&G / JPM
- 2016: the top 10 will represent 30% in market share
- The pure financial planning website such as Fundsmith are growing rapidly
- Non-sophisticated site
- A bit messy
- But adapted to retail expectations
- The platforms contribute to transparency in fees charged
- still some countries such as Italy where transparency is an issue
NPD! New Product Development by Diana Mackay
Diana Mackay, the legendary Fund Connoisseur, gave us feedback on investors’ mood for new products.
“The days of product pushing are over. Today only smart products work”.
- Too many funds: 35,000 in EU and 9,000 in the US.
- Average size in EU: 192ml and 1,2bn in the US
- Investors’ feedback: too many products BUT we need to have the choice
- And innovation brings new products/new fund solutions
- What is the minimum size to be a successful launch?
- 100ml says Diana Mackay; floor rather voted 500ml
- She listed the top 5 products with assets raised
- 3 were relative small firms
- Often their flagship fund represents more than 50% of their AUM
- causing issues of concentration on one product
- reasons of success:
- alignments of product development/compliance/marketing/sales
- Absolute returns have been the greatest success since 2008
- According to Diana, product launches should be in 2 categories:
- For conservative investors (retirement plans)
- For retail savers (simple)
Fund of funds in the UK: Bella Caridade-Ferreira, Fundscape
Bella Caridade-Ferreira is another key figure in fund market research in the UK and any fund manager who wishes to understand the specificity of fund distribution in the UK, should read her research!
- Fund of funds business never really took off but with RDR potential growth is there.
- Fund of funds in the UK accounts for £56bn, 6% of the total AUM
- Fundscape analysed the top 10 holdings of the top 100 FoF in the UK (roughly representing 85% of the market)
- The top 5 represent 50% of the assets AND 95% of the net flows
- Meaning that fund managers distributing in the UK should focus on those top FoF players
- The top 5 players in FoF have changed in the last 5 years because of the change in distribution and the impact of RDR
- Fund managers can not anymore pay distributors and are looking for influencers, for smart platforms that have proprietary solutions
- 36% of FoF assets are invested with the same 5 managers because of concentration risk
- there is a bias towards size
- there is nevertheless a bias towards performances
- key messages:
- target
- identify the influencers
- performance is key
- check your offering to provide Sterling share classes
- Alpha and beta: review your pricing and choose your camp
Mark Mobius: Invest in Emerging New Frontier Markets
- We are back to positive flows in emerging markets
- Central banks are richer than never and have so much cash to invest
- Fundamentals: growth factor: +45% GDP per capita growth between 2008 and 2013
- Big driver: technology and smart phones
- Power to buy
- The debt to GDP ratio is down
- Most rating agencies have upgraded emerging debts
- The bond markets offer great opportunities
- Angola, China and Thailand are the top fastest growth in the last 3 years
- Human resource with 1bn people and average age of 20 compared to 40 in developed countries
- The growth of emerging markets comes also now from internal investors such as Pension Funds that are growing (such as in Chile).
Tip from Mark Mobius: ”There is no ideal time for investing, invest when you have the money”.
Innovation in Africa: The Africa Mobile Commodity Exchange = Creating Connectivity
Dr Julius Akinyemi is an entrepreneur that has decided to create a platform where anyone, individuals and corporate, would have the possibility to list their assets. This transparency aims to create leverage to borrow money and to finance growth. But without trust and visibility, growth is not possible and not accessible. There is a system where other members of the community engage their responsibility to validate the existence of these assets. Dr Akinyemi is also implementing data and a software that can evaluate assets with a local perspective to avoid using international valuation models that would be not appropriate.
- Africa is 55 countries
- 45% of the population has mobile phones
- people who have studied internationally come back in Africa to create new opportunities
- venture capital is not yet there. They focus on political risks, they don’t understand the local culture
Dr. Vanu Bose, another expert on the African market, explains that international mobile networks struggle to enter the African market for costs issues as well as cultural gap. The South African mobile network MTN, now present in 22 countries, exists till 1994.
The biggest issue with African development is funding. Even local investors have problems accessing to projects. Transparency is needed.
Another key points outlined by Bose is the lack of Personal Identification in some African countries. Therefore, education plays an important role in the evolution of the market.
Consumers in China opening to the world! By Dr Keyu Jin and Andrew Dalrymple at Aubrey Capital Markets
Key Points
- Wage growth of 11% every year since 2000 with 17% annual productivity growth
- Creating a new massive generation of consumers
- Individuals in China have about 80% in savings generating zero returns
- The 1 child policy is creating a new world of human capital, well educated, despite rising education costs.
- The new generation is using actively e-commerce
- The new generation wishes to travel outside China
- Creating a huge potential of new travellers
- Requiring dedicated travel agencies all around the world
- Healthcare is the second huge potential sector of growth
- Hospitals are full and crowded
- Consumers are using hospitals even for relatively benign diseases
Summit Day took place at FundForum International on the 23rd June 2014. Be sure to also read up on our Day One and Day Two roundups.
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