Category: asset management

The Future Shape of Asset Management – 1 Year On

A year flies by. It’s been twelve months since I first put together No Ordinary Collision: The Forces that will Shape the Asset Management Industry, a thought piece bringing together many pieces of work and research on mega trends, and which identified particular intersections between emerging trends that could be meaningful for the asset management industry. The aim wasn’t to try and make concrete predictions, or envisage a particular world. But rather to identify and observe trends and themes that might be important – many of which have already been widely covered and researched – and envisage how these might interact to influence the world of finance.

A year can fly by but at the same time it’s fascinating to see how much these trends have developed and thinking has moved on. At the end of last year’s piece I concluded with a checklist of 6 key takeaways for those of us in the industry to best position for the changes on their way. A year later I asked myself the question whether these need updating, but I remain happy that these are still broadly the most relevant themes to focus on.

Download the full document here >>


Key milestones over the last year in Digital / Customer Centricity:


Key takeaways for the future – 

2016’s Most Popular 

My most-read blog posts of 2016 were: 

1. Why Anthony Hilton is wrong about DB pensions 

This post, responding to the misguided (in my view) viewpoints of London Evening Standard journalist Anthony Hilton in September garnered by far the most views of any of my blogs this year (around 1400 views). 

An extended version of this article was also featured in Professional Pensions, and also became their most viewed opinion piece of the year

The article must have stuck a chord with readers in the pensions world. We do of course live in pretty challenging times for DB pension funds, with several strong macro-economic headwinds making it harder to deliver the benefits that have been promised. This year saw a vigorous debate around what should, or should not be done to the DB pensions system. This debate was further catalysed by the high-profile cases of BHS and British steel, and the debate looks set to run on into 2017. 

Given the importance of the DB system to the retirement prospects of millions of members I believe a solid debate on some of these important issues is to be welcomed, and look forward to continuing the debate productively in 2017.

2. No Ordinary Collision – the Future of Asset Management

Powerful forces of change are at play in many industries, and asset management is certainly one of them. Technological and demographic shifts will shape the future of the asset management industry, in this piece (April 2016) I discussed some of  the intersecting forces, drawing on a wide body of existing research on the future of work and finance. 

Here are my six key takeaways: 

3. Consulting firms reply to the Work & Pensions Select committee 

In the wake of the BHS pensions story, the W&PSC issued a green paper calling for views on the future of the DB pensions system in the U.K. Given the prominence of this debate and the considerable air-time it’s received this year the responses from the main actuarial & investment consulting firms were considered and insightful. What was also interesting was the diversity of views. Will most schemes pay the benefits promised? Should the role of TPR change? Should there by wholesale change to the system? Will small changes be effective? Is consolidation feasible? These were all questions on which the consulting firms gave insightful, but often differing answers. 
I hope you’ve enjoyed my blog posts this year. I look forward to sharing more in 2017. Sign up to receive updates on new posts.

Two Days Among Actuaries

Just back from a couple of great  (sunny!) days in Edinburgh for the institute of actuaries conference which importantly this year incorporated pensions, investment and risk components together for the first time.

Quite a lot of interesting takeaways and observations from around the industry. As Marian Elliott said in the first session  “To the worm that lives in horseradish, the whole world is horseradish”. The point being it can be helpful to get a different perspective on things from the one you usually have.

Here are the big 3 things I took away:

 1. Integrated Risk Management (IRM). The pensions regulator continues to stress the importance of IRM in the latest funding statement here, and the IFoA working group has made progress thinking about the issues.

My  takeaway was that this remains a work in progress in that no-one has (yet) put forward the “perfect” framework for looking at these three components and bringing them together in an intuitive and practical way  (possibly, that doesn’t exist). What the working party has done is given considerable thought to a number of worked examples that act as  “corner cases” and challenge people to  think qualitatively about those different components of risk, what investment and funding strategies should result and  key metrics to track to best monitor.

With some of the current high profile cases in the news, the examples seemed very pertinent.  It’s clear that thinking in some of these cases has to come back to the member perspective, and what gets the best outcome for members benefits, and this inevitably includes thinking about the possible interaction with the PPF, something that clearly has to be handled carefully.

While this remains a work in progress I think the thinking that went into the worked examples, including legal opinion on certain points, is a welcome contribution to this important area. The suggested further reading (including  the Blake / Harrison paper  The Greatest Good for the Greatest Number looks interesting and I look for ward to reading further)

The session ended with a challenge to the audience – someone needs to take the initiative and bring these strands together. The working party proposed that actuaries are well placed, I would argue that the investment consultant is, too. The WP expect to communicate more toward the end of the year, I look forward to continuing the conversation.

2. British Steel

Not surprisingly this seemed to be one of the major talking points of the conference over many a coffee and beer. It’s putting the issue of pensions on the front pages of mainstream papers and into the general public discourse in a way that I haven’t really seen during the rest of my career (possibly you need to go back to the 1990’s and Maxwell to find a similar time). The panel discussion organised to address the consultation and the profession’s possible response was remarkable both for the number of people filling the room, and the strength of views expressed. This session was explicitly under “Chatham house rules” so I won’t share too many details, but fair to say there was a lot of questioning of the need to make this scheme a special case, and the danger of making up legislation and precedent “on the hoof”. A couple of interesting prior cases were mentioned including British Midland/Lufthansa which I need to read up on.

The discussion of the individual consultation options was interesting, albeit somewhat drowned out by the wider question of whether creating a special case is the right thing. What was clear is that there is an increasing acknowledgement that the ability (or not) of any scheme to move benefits from RPI to CPI may essentially be an accident of drafting and in effect is a lottery. I strongly suspect that whatever happens to British Steel we haven’t heard the last of the CPI/RPI debate which looks set to continue rumbling on.

3. Endgame & Self sufficiency management

Paul Sweeting of LGIM wrote a recent paper on a blueprint for self sufficiency management, and this got quite a few mentions. It’s a welcome contribution to the area and ties in with a lot of our thinking. The use of contractual cashflow, and alternative metrics for risk, with a nod to the practice and mindsets of the insurance industry makes a lot of sense.

the key findings of the paper are:

  • Focusing on the probability of paying all benefits is a helpful metric for end game schemes (more so than VaR or volatility);
  • For schemes that are well funded enough, corporate bonds are the best asset to hold to maximise this metric;
  • Allowing for defaults, downgrades and being dynamic with decision to reflect changes in spread level is important;
  • Conventional mark-to-market volatility becomes less of a consideration;
  • Where liability present values are needed, the corporate bond spread  can be embedded into the discount rate, to create matching of assets and liabilities.

While probably not that many schemes are in the end game yet, as we noted in this blog it is important to set out with this destination in mind, even if it is some way off. And as we know from survey data many schemes have self-sufficiency in mind as a goal. A useful first step is to make sure they have advisors and fund managers in place with a clear and sensible plan to construct and implement a strategy to deliver the scheme’s self-sufficiency goal.


Roboadvisor Europe 2016 – The Future?

The future of asset and wealth management?

A thoroughly excellent event was organised by Level39 in London on 25 May 2015, featuring speakers from all the key players and analysts in the fairly nascent European roboadvisor scene and around 250 delegates.

My five top takeaways are below, or you can read my storify story here.

1. Mind the 2016 inflection point

Rohit Krishnan of Mckinsey made this point, but it was echoed by others. The growth rates of the two longest stablished US roboadvisors (Betterment and Wealthfront) have stalled somewhat, possibly co-inciding with the robo launches of two large incumbents Vangard and Charles Schwab. With significantly lower AUM than is probably needed to justify costs and valuations, 2016 could be an inflection point, which way will things tip?

2. Customer acquisition cost is key

It’s a closely guarded secret when it comes to individal firms, but surveys and other data in the public domain suggest that customer acquistion costs can be in the region of $300 or higher, but lifetime value of an average client may only be $250. If that’s true, then it would seem to pose a challenge to the business model.

3. But Europe is a bit different

Several of the European robos made the point that the European market is a bit different to the US. With less competition on fees in the traditional advised space, European robos charge in the region of 40-70bps rather than 20bps in the US. This means the breakeven point in AUM might be somewhat lower, 0.5-1bn was suggested.

4. It’s all about the api

There was a fascinating panel covering the tech aspects. The main takeaway being that we have entered a new era of openness, and what’s important is opennes with regard to architecture & api , to enable other components “plug in” to create an ecosystem.

5. Scale & brand are hard

These two comments stood out to me from all the points made by the startups. Firstly, building the right scale to reach 1m+ customers is difficult (more difficult than we thought said Shaun Port of Nutmeg). Secondly, several panellists commented that building the wider brand and customer awareness was key, no-one had really done it yet, and many firms were in a race to try and do so.

that’s it! plenty more I could say (and check out the storify for more).

No Ordinary Collision

Your 10-Minute Guide to the Future of Asset Management.

Download the full paper here >> no-ordinary-collision-v6-singlepage-HR

It’s always easy to ignore or dismiss forecasts of the way the future may change our industry. Some might seem too obvious, some too far-fetched. We all exist in a daily whirlwind addressing the challenges of volatile markets and demanding clients.

It’s great to take a step back though and take a moment to think about the future of the fund management industry. that’s what i had some fun doing when I sat down to write: No ordinary collision, your 10 minute guide to the future of asset management. I took the time to read through a lot of the great thought pieces out there relating to these future themes (from the likes of PWC, EY, McKinsey and Forbes) summaraise what I saw as the key themes running through them and add some thoughts of my own.
the way I see it, the asset management world looks set to be affected by future trends and themes from at least two sources,
1. the future of work
2. the future of pensions & asset management
Each of these taken on a standalone basis are facing considerable change, taken together it creates some powerful intersections that could really change the way our industry functions and the importantly the key value chains within it.
I’ve spent some time thinking abouut what I think are the key intersections (these are shown and discussed in a little more detail below). you can read the fll report here.
Clearly there’s no single blueprint for success in such a changing and disrupted world. I’ve tried to lay out what I believe are 6 key things asset managers can address. I’d love to hear your thoughts, do tweet me to start a conversation.

Market Volatility Hits Asset Returns

Market volatility this August caused many asset classes to be in the red when viewed over the year to 30 September 2015.

We’ve long believed that to evaluate asset classes over long periods its more helpful to look at a measure of the risk-adjusted returns (such as the sharpe ratio) than pure returns – you can find our Q3 2015 update of the sharpe ratios of many asset classes here.

Terms such as “Sharpe ratio” can sound like jargon but really what it means is how smooth the investment ride has been. Nirvana of course is an asset that goes upward in a straight line with never a bump in sight. That doesn’t happen of course but the sharpe ratio tells us important information about how “bumpy” the ride has been (or will be). A sharpe ratio of 0.1 say, is pretty bumpy – you will have to endure a lot of ups and downs to earn the return. A sharpe ratio of 1 or greater is a pretty smooth ride, any setbacks are probably quickly recovered.

When viewed through that lens, over the last 5 years the picture is still pretty favorable and the medium term trend of a strong market rally at low volatility is still the dominant theme, although sharpe ratios have been somewhat hurt by the recent performance, they are still substantially above what we would expect. Equities for example have a sharpe ratio in the region of 0.6 over the last 5 years, compared to a long term average around 0.2. Generally we would expect returns to be accompanied by a lot more volatility than we’ve seen, even taking August into account. Other asset classes such as credit have also enjoyed a substantial low volatility rally, resulting in higher sharpe ratios than we would normally expect, of around 0.8 compared to longer term averages of 0.3-0.4.


If you look back over 10 years (which includes the 2008-9 crash) then over the whole period the sharpe ratio for equities is pretty in line with what we would expect (0.2).


Ultimately we would caution clients to be wary of putting too much emphasis on the return data over the last 5 years when making portfolio allocation decisions. Since the crisis we’ve seen quite an exceptional low-volatility rally across the board, and generally we would not expect such returns to be achieved at such low levels of volatility. There are three key principles of portfolio construction that we continue to believe in:

  1. Diversification
  2. Risk Control
  3. Downside protection where possible
  • Diversification between a number of assets or strategies will lead to portfolios with a better risk-adjusted return compared to portfolios exposed to a single risk premia, giving a smoother ride (improved sharpe ratio)
  • Employing strategies that curb exposure in times of higher risk (risk control) gives grester certainty of meeting an outcome
  • Where available, strategies that incorporate downside protection will help prevent the portfolio from falling off track