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What’s in Store for 2020


A new Bank of England governor, a much-delayed Brexit and a US election are all on the cards in 2020 and are just three of the many changes or challenges that investors will need to navigate in the year ahead.

For the past six years, Research in Finance has been supporting companies in financial services enabling them to tackle developments such as these and more, so that they are best prepared when it comes to serving their clients.

Next year will be no different, with a huge line-up of projects planned for the RiF team and its partners.

Earlier in the year, there will be the release of the UK Investment Trust Study (UKITS), which will have a particular focus on the impact of the Woodford fall-out and sustainability in closed-ended vehicles. It will explore the liquidity benefits of investment trusts versus open-ended funds, with 73% of respondents to our survey citing ‘the fund manager is not forced to sell investments to fund redemptions’ as a main benefit of ITs from a list of options. Meanwhile, UKITS will also look at the rise of appetite for sustainable and responsible investing in trusts and the extent to which investors anticipate they will be more likely to choose sustainability/renewables-focused investments over the next six months.

This will be closely followed up by the UK Responsible Investing Study (UKRIS), further analysing the use of environmental, social and governance (ESG) factors in investing across the wider fund market. Things have moved on quite significantly since RiF published its inaugural Responsible Investment Review report in early 2019, with a considerably higher share of DFMs and advisers favourably rating their own understanding of ESG integration, sustainable investing, stewardship and the like. The majority also agree with the statement ‘sustainable investing should just be seen as sensible long-term investing’ and disagree that sustainable investing is an ‘industry fad that won’t last’, indicating there is also improving perception of its value.

A couple of years on from its launch, RiF will also be updating the Wealth Managers Review and once again providing management companies with insight to improve their understanding of the wealth management market. We will explore how the trend for advisers to outsource to DFMs has evolved and alternative routes some advisory businesses are taking, as well as answering those all-important buy list questions.

We will explain how the use of segregated mandates has evolved, how DFMs prefer fees to be presented to them, and the best ways sales and distribution teams can communicate with them. Popular last time, we also reveal the best sales teams and individuals as chosen by DFMs.

In a new partnership, RiF will also look at how the asset management industry can help close the Gender Pension Gap in a joint study with City Hive, the network for change in the sector. We all know the depressing figures – the Gender Pensions Gap stands at nearly 40% and isn’t expected to close until 2100. Our study is unlike others already carried out as it is directly aimed at investment managers and will identify how they can drive change. It will pinpoint the ongoing pitfalls that companies fall into when it comes to engaging women on their pensions and investments and identify what will improve this issue, providing them with practical solutions and direction.

Throughout the year we will also continue to work with stakeholders on our rolling market studies, the UK Advisory Study (UKAS), and UK Institutional Market Study (UKIMS), and continue to quiz our private investor panel every other month on their portfolio changes and behaviour for Pulse.

Meanwhile, over in Research in Insurance (RII), early in the year we will be launching the UK Insurance Investment Study (UKIIS), which provide firms with insight and understanding of the investment strategies within the asset side of UK general insurance companies.

RII will also be unveiling The Evolution of Claims Report in Q1, an agenda-setting study of senior claims professionals from across the globe. Focusing on innovation, this report will encourage collaboration and help the claims sector prepare positively for the future.

Additionally, RII will be developing content for thought leadership campaigns in the insurance claims space and the personal lines broker sector, while also beginning analysis of strategic account management systems and processes.

In case you missed it, we launched our consultancy, Elevate in November and we’re excited to be holding initial conversations with our clients. Elevate focuses on business strategy and planning, sales and marketing enhancements, product and business proposition and also helping our clients to really leverage the output of the research projects we undertake for them. Keith Evins, ex-CMO at J.P. Morgan Asset Management joined us to run Elevate and we’ll continue to introduce him to our clients as we move in to the New Year.

For us and our clients, 2020 is set to be another year of challenges and yet opportunities for the financial services sector. We look forward to helping firms set themselves apart from the competition and move into the next decade, informed and prepared to be at the forefront of the next phase of growth in their respective sectors.

Research in Finance would like to wish all clients and readers a Merry Christmas and a Happy New Year.

Navigating the yield drought


Fixed income investing has become far more difficult in recent years as interest rates and yields have plummeted.

Many so-called ‘safe haven’ government bonds are negative across the yield curve: 10-year yields from countries including Germany, Switzerland, the Netherlands and France are in negative territory (1) , while bonds from ‘peripheral’ Europe such as Ireland, Portugal and Spain, that were deemed high risk just a few years ago, are yielding less than 0.5%.

This is posing problems for even the largest of investors: Norway’s $1.1trn Government Pension Fund Global reported that a quarter of its fixed income holdings – equivalent to roughly $65.5bn – were negative yielding at the end of June 2019.

At the time, the sovereign wealth fund had 28% of its total portfolio invested in bonds. For insurers, bonds often make up a much higher proportion of investment portfolios – so how to cope with an asset class that is losing money?

“Insurers are increasingly being forced to become very creative,” says Mark Fehlmann, head of European insurance at DWS. “For the past several years many thought they could wait it out, but now it seems clear that the ‘low for longer’ scenario is really happening.”

Larger investors have been diversifying into higher-yielding assets with lower credit ratings for some time, Fehlmann explains. Those that have yet to do so must now “take a hard look at the future development of running income given reinvestment at negative to low yields”. This presents an opportunity for innovative asset managers.

Globally, insurers have begun to recognise the importance of diversification and of having “a holistic portfolio framework for strategic asset allocation across all asset classes”, according to Charles Hatami, global head of BlackRock’s Financial Institutions Group.

Writing in the asset manager’s 2019 Global Insurance Report (2) , Hatami said: “We expect this trend to intensify as the proportion of global fixed income assets with extremely low or negative yields increases and as equity markets encounter incremental volatility.”

Arguably the biggest beneficiary of the hunt for yield has been the private debt market. Traditional banks pulled out of many areas of unlisted debt in the wake of the global financial crisis, leaving a funding gap that has been filled by asset managers serving pension funds and insurance companies. At the end of 2018, private debt funds had a combined $763.6bn in assets under management, according to data company Preqin. This total included $294.4bn of dry powder .

BlackRock’s 2019 survey showed that appetite for alternatives, and in particular private market assets, has grown steadily in recent years. It reported that a third of insurers considered private markets investments as part of their core strategic asset allocation .

Fehlmann highlights direct corporate lending as a potential substitute for high yield fixed income exposure with an additional uplift from an illiquidity premium, while real estate debt can also offer attractive risk-adjusted returns.

Infrastructure debt has grown in popularity in recent years. However, Fehlmann warns that “unfortunately this is a secret to exactly no one… Spreads are, in our opinion, way too tight”. According to Goldman Sachs Asset Management’s (GSAM) latest insurance investing survey, just 8% of insurers expected infrastructure debt to provide the strongest returns over 12 months (3) . However, 31% still planned to increase their exposures.

Away from the unlisted markets, high-yield corporate bonds and hard-currency emerging market debt (EMD) are still of interest to insurance companies, according to the BlackRock and GSAM reports. However, Fehlmann warns that hedging currency on EMD allocations can be prohibitively expensive if investors are not buying euro-denominated assets or funds.

While there are still many opportunities for investors in these areas, insurance companies must ensure they have the governance budget to ensure adequate oversight of alternative debt investments. In its report, BlackRock urged insurers to “review and enhance” internal governance structures as well as risk management and capital modelling processes.

Even traditional fixed income investments may require investors to allocate more resources, DWS’s Fehlmann adds: “In standard investment-grade-rated credit universes there are absolutely pockets of positive return areas available, but top-notch credit research capabilities are critical.”

In early 2020, Research in Finance is teaming up with sister company, Research in Insurance to launch The UK Insurance Investment Study.

This project will provide a deeper understanding of the investment strategies within the asset side of UK general insurance companies. How asset managers can effectively communicate, influence and engage with this audience.

There is an opportunity for a limited number of stakeholders to be involved and help shape this influential study. If you are interested, please contact Richard Ley or Phil Davison on 020 7104 2235

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