Funds Congress 2024 Highlights

Funds Congress 2024 highlights

Global Outlook for 2024

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Decoding 2024: Five Economic Trends Impacting Asset Management

As we progress through 2024, asset managers face a dynamic global economic landscape. This article breaks down five critical economic trends – inflation dynamics, evolving investment strategies, equity market shifts, the growing role of private markets, and potential forecast risks. These trends are not only shaping the economic outlook for the year but also significantly influencing the asset management industry. A clear understanding of these trends is essential for asset managers to navigate risks, identify opportunities, and formulate effective strategies in this changing economic climate.

Inflation dynamics: After a bruising year of inflation-induced volatility, the pivotal question facing central banks and the markets is: to what extent do inflationary pressures remain entrenched? Sustained falls in headline inflation rates – the most visible indicator – suggest that the worst is over. Central bank policy committees clearly do not want to countenance further interest rate rises. Most market participants expect the central banks’ next move to be downwards; the main question is when.

Investment strategies: Investor sentiment has pivoted in expectation of probable rate cuts by central banks, fuelling a reawakening in the markets. As inflation concerns ease, many are asking what advantages this new world might hold. An immediate consequence is the opportunity for investors to make the most of the re-set and put their cash to work. It’s no surprise we’re hearing the mantra: “Bonds are back!” In the fixed income market, the opportunity to lock in the current level of yields on high-quality bonds looks attractive. Not only can these assets provide a healthy income stream, but there is also the added benefit of potential diversification if the growth outlook turned nasty.

Equity markets and tech innovation: A vigilant approach to the extreme valuation disparities within the equity markets would be wise, particularly in the U.S. tech sector, where AI-driven excitement has fuelled severe price distortions. Glittering promises from the tech world have a habit of not proving quite as pervasive as first promised; don’t forget, too, that it is notoriously difficult to pick the ultimate winner. Dispersion across regional markets could provide broader gains, particularly if investor interest in UK and European stocks picks up as falling inflation gives rise to renewed economic activity.

Role of private markets: While bonds can provide effective protection from growth shocks, they do little to mitigate against inflation-driven shocks. Alternative assets can be useful to plug gaps where the public markets are insufficient or unsuitable. Investors are increasingly obliged to access private markets anyway, as ambitious, fast-growing companies choose to stay private for far longer than just a few years ago. There are also opportunities to be found in sectors that thrive in inflationary environments, such as timber.

Forecast risks: The primary downside risk is that inflation concerns continue to drive market volatility. While headline inflation rates have improved, underlying pressures remain in the form of continued supply chain issues linked to the rerouting of global trade, and conflagration in the Middle East; wage growth, too, is one to watch, while political noise, much of it emerging from a pre-election United States, adds another layer of uncertainty. While it’s still too early to call the U.S. election, it’s good to remember that what politicians say and what they ultimately do may be very different. Legislative checks and balances have historically tempered much of even the most radical policy agenda.

Decoding 2024: Five Economic Trends Impacting Asset Management

Karen Ward | Managing Director, Chief Market Strategist for EMEA, J.P. Morgan Asset Management

Navigating the 2024 Geopolitical Landscape: Key Trends Impacting Asset Management

Alastair Campbell | Former Downing Street Director of Communications and Strategy, Rory Stewart | Former Cabinet Minister

Regulatory Roadmap

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The Regulatory Roadmap of 2024: Top Five Trends Shaping the Future of Asset Management

As we venture into 2024, the regulatory landscape is set to undergo significant transformations with five regulatory trends defining the asset management sector in the years ahead. These trends encompass sustainability and ESG integration, financial stability, emerging retailisation of private assets, the non-banking sector’s role, and EU-UK regulatory alignment. Each of these trends presents unique challenges and opportunities for investment funds and asset management professionals and understanding them is crucial for navigating the evolving regulatory environment, driving compliance, and managing risk effectively.

Sustainability and ESG integration: In a pivotal year for Europe, underscored by national and European parliamentary elections, the regulatory agenda remains busy. In view of the huge growth in sustainable finance, implementing sustainability-related regulation and avoiding greenwashing remains a supervisory priority for the European Securities and Markets Authority (ESMA). A key area is the issue of fund names: with Articles 8 or 9 effectively acting as a “proxy label” for funds, ESMA’s primary concern is to ensure that the underlying investments are properly aligned with a fund’s name where those names use ESG or sustainability-related terms. ESMA will publish new guidelines on the use of ESG or sustainability-related terms in fund names in 2024.

Financial stability and liquidity: Amid a new macro-prudential environment, a renewed focus on financial stability has seen the Financial Stability Board scrutinising liquidity mismatches in open-ended funds, with the International Organisation of Securities Commissions reviewing liquidity management issues. With the EU focusing on monitoring the implementation of liquidity provisions by asset managers, some mandatory requirements on the use of liquidity management tools are likely through the Alternative Investment Fund Managers Directive (AIFMD) review – so called AIFMD 2.0, with ESMA due to draft technical standards specifying the available tools. In the area of leverage, AIFMD 2.0 also contains new rules on loan origination.

Emerging retailisation trends: One of the hottest topics of the year, the European Long Term Investment Fund (ELTIF) 2.0 structure has sparked a significant amount of work by national regulators committed to broadening investment in private funds; an area where Europe trails the United States. In its proposed Regulatory Technical Standards (RTS) for ELTIF 2.0, ESMA has made significant efforts to balance flexibility and agility against risks to financial stability. The draft RTS is now being reviewed by the European Commission.

The non-banking sector’s role: Debate surrounds the level to which the asset management sector will be called on to finance global climate transition. From a regulatory standpoint, fairness for investors must be balanced against maintaining the robustness on which the wider economy relies. The European Commission’s report considers these issues. Further work may be needed to examine the interconnectedness of the banking and non-banking sectors, though so many safeguards already exist at both the fund and macro levels, including stress testing, leverage limits and rules governing liquidity management and loan origination.

EU-UK regulatory alignment: In the UK, where the FCA has adopted an outcomes-based philosophy exemplified by its Consumer Duty, the regulatory agenda has proved to be broadly aligned to that of the EU – in a global industry, after all, similar issues face all regulators, even if the timing and specificity of their responses may differ. Under the UK’s Overseas Fund Regime, a legislative framework for a new streamlined process to recognise overseas collective investment schemes domiciled in jurisdictions deemed ‘equivalent’ by the Treasury will make it easier for such schemes to market to retail investors in the UK. As a first step, the Treasury has deemed EEA states to be equivalent in relation to UCITS (except money market funds). The FCA is also working to streamline the recognition process for individual funds once their jurisdictions have been deemed equivalent.

The Regulatory Roadmap of 2024: Top Five Trends Shaping the Future of Asset Management

Antonio Barattelli | Head of Investment Management Unit, ESMA
Nike Trost | Head of Asset Management, Funds & Pensions Market Analysis & Policy, FCA
James O’Sullivan | Head of Fund & Firm Authorisations, Funds upervision Division, CBI
Patrick Hoffmann | International, Regulation and Enforcement, CSSF
Dick Frase – Moderator | Partner, Dechert LLP

Investor Perspectives

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Investor Preferences Amid an Evolving Asset Allocation Landscape

Investors face a paradigm shift in asset allocation strategy as structural adjustments in the investment landscape present new opportunities in the fixed-income and private markets. Tailoring asset allocations to specific pension fund needs remains crucial, while investor intuition remains an important factor in spotting opportunities during periods of market stress.

Investor preferences amid a shifting landscape: Asset allocation remains one of the most critical factors in determining success or failure for investment funds. As the sun sets on a decade that has proved remarkably generous to the pensions industry, investors should assess the extent to which their needs and preferences may evolve as the tailwinds that have proved so helpful for so long morph into challenging headwinds.

Diversification and evolving markets: With their eyes focused resolutely on the long term, pension funds have learned how to remain undisturbed by the clamour of politics and the distractions of the short term: positioning a portfolio for geopolitics, after all, is nigh on impossible. Yet as funds redesign their portfolios in search of the robustness needed to withstand the challenges of the coming decades, the diversification agenda – so important in a world in which traditional bond/equity correlations have largely fallen away – will remain front of mind.

Structural shifts: The good news, funds report, is that promising new opportunities abound, particularly in the fixed-income and private markets, which seem set for spectacular growth in a world retooling for the zero-carbon transition. Increasingly wary of growing volatility in the public markets, investors’ growing preference for alternatives is driven, too, by the search for scale: companies that once resorted to private funding to plug gaps can now finance landmark deals without any recourse to public markets. Despite the recent LDI and real-estate crises, greater comfort among investors with ever-higher allocations of illiquid assets has only accelerated the trend.

Tailoring allocations: Asset decisions remain heavily dependent on pension funds’ membership profiles, scheme types and funding needs, of course; what works for one may not work for all. Asset and liability management techniques can provide a useful lens on tough allocation calls, but, despite technological aids, there’s still a role for good old-fashioned investor intuition. Opportunities arise through crisis, after all: nimble footwork can pay handsomely when assets come under stress and nervous investors flock to the exits.

Investor Preferences Amid an Evolving Asset Allocation Landscape

Mike O’Brien – Moderator | Non-Executive Director, Carne Group
Barry Kenneth | Chief Investment Officer, Pension Protection Fund
Mark Walker | Chief Investment Officer, Coal Pension Trustee Services
Padmesh Shukla | Chief Investment Officer, Transport for London Pension Fund

The Future of Wealth Management

Navigating the Future of Wealth Management: Key Trends for 2024

Albertha Charles – Moderator | AWM Leader, PwC
Etienne Burger | Partner, Strategy, Insurance, Asset & Wealth Management, PwC
Alexandra Loydon | Director of Partner Engagement and Consultancy, St. James’s Place
Terry Donohoe | Managing Director & Chief Executive Officer, Ignition Advice