One of the key lessons from 2020 is that when circumstances dictate, we are able to witness and adapt to rapidly accelerating change. Whether that is from the perspective of changing our homes into our offices and with it the technological intrusion to our personal domain, or balancing the needs of work and the educational demands of our children through home-schooling.
These experiences have opened our minds to potential only previously contemplated in futuristic landscapes, akin to a ‘Tomorrow’s world’ scene of shiny, high-tech, minimalistic environments. The concept of working from anywhere in the world, irrespective of the location of your employer, is now no longer an aspiration limited to a handful of professions. The future of work and how it fits into our life is now more open to adaptability than we have ever before seen.
As the reality of this new flexibility really takes hold among the senior leadership of companies, it is only a matter of time before the detail of the benefits linked to our employment are examined and new concepts proposed. One such detail will be around retirement income and ensuring employees are preparing themselves financially for the life beyond the workplace. We have already seen significant change over the past decade with the transition from defined benefit (DB) arrangements to defined contribution (DC), shifting the onus of risk from the employer to the employee. The futuristic transition is likely to be an extension of this movement, with the removal of the demarcation of “pensions in retirement” and the focus changed to holistic savings, utilised when circumstances require, irrespective of the stage in our life.
If this individualised investment does materialise it will also have important ramifications for the investment industry. The risk sharing arrangements implicit in DB plans enabled long-term thinking which could be translated into an asset allocation that incorporated illiquid, risk-seeking assets often accessed through private markets. That appetite still very much exists, evidenced by the decline of listings on public markets. New mechanisms will be required to allow individual investors to gain exposure to these private entities and manage the illiquidity risk associated with investment. Similarly, a move away from risk sharing arrangements will place greater reliance on the investment manager creating solutions rather than expecting the end investor to determine their own asset allocation. The solutions will need to be flexible and accommodate the conflicting characteristics of growth and illiquidity with the potential need for short-term cashflow.
“ New mechanisms will be required to allow individual investors to gain exposure to these private entities and manage the illiquidity risk associated with investment.”
Technology solutions will be essential in the investment realm of the future. There will be a growing need for greater transparency to the holistic portfolio, enabling the investor to view and manage total assets and liabilities – platforms will need to be able to aggregate client’s exposures from a range of providers and facilitate movement of money and collateralisation of assets, where there is a need for leverage.
As the proximity to the end investments moves closer to the individual, so too does the impact of those organisations to the moral judgements of the investor. We have seen the rapid growth of ESG and this will continue apace as people are given more control about the constituents of their portfolios, indeed moving from a focus on negative screening towards positively allocating to companies whose values and culture reflect those of the investor. For companies to engage with this investor base, there will be a need for new standards that measure not just economic output but also the role of the organisation in society and their progress against, for instance, Social Development Goals.
As uncertainty continues over the role of the UK investment manager within the European Union, business models will need to be flexible to accommodate shifting investment to new fund platforms or indeed relocating portfolio teams. The resilience learned through COVID is certainly likely to be drawn on in the coming months as the detail of the deal with Europe is drawn out.
The coming years are likely to see significant acts of consolidation across multiple segments of the industry – consultants, asset managers and, indeed, pension schemes. The growth of aggregators will continue to manage the legacy of the DB, creating some significant pools in the public and private arenas, matched also by the continued growth of fiduciary solutions offering a more efficient mode of operation for those schemes too small to manage alone.
So, all in all, never a dull moment for an industry that continues to innovate and adapt to new ways of investing and providing growth to support the incomes of millions of people.
Talk to Chartered Developments?
The challenge remains how to best navigate this ever-evolving business. The needs of the different clients are varied but they have little governance bandwidth, which means that sales approaches need to be both consultative and targeted. Moreover, the role of investment advisers in the process can range from full-on support through every stage to light touch regulatory sign-off. So, for managers wishing to steer a clear course through the process they need to understand the needs of the end buyer and the process they follow in order to arrive at their preferred destination. In a crowded market-place, this is not straightforward and requires deep knowledge and expertise.
This is where we can help. Through our collaboration with Peter Brackett of Institutional Adviser we collectively have the resources to get you to market. We are able to help you identify which segment is most likely to work for you, we can introduce your investment services, raise your profile with the key decision-makers and build your pipeline of opportunities right up to the point of ‘beauty parade’. In short, we can help you build your business whilst you focus on doing what you know best – managing money.