Super’s biggest problem likely lies within funds themselves, with many using legacy operational infrastructure ill-suited to the needs of the major financial organisations they’ve become.
The race to the bottom on low cost, benchmark aware solutions for a post-YFYS world has pretty much been run. But while the perception of value currently sits on price, that might not be where it ends up, according to Fidelity’s Simon Glazier.
How Insight is tackling the new world order
This is a gloomy story but the good news is that the bad news may not happen for a long time. Abdallah Nauphal, the chief executive of Insight Investment, says, after all, a pessimist is just an optimist with more facts. He gave the big global manager’s take on the changing world to Australian clients recently.
Insight Investment, an affiliate manager of BNY Mellon, which has had an Australian presence dating back to the early 1990s through its Pareto Partners specialist currency division, is a A$900 billion London-based manager.
Nauphal visited Australia last month and said he thought that the world was witnessing the end of an era. We are not having a cyclical shift – it’s much more than that. Due to geopolitics, with the new nationalism leading to protectionism, and the rising tide of demands for better social and economic equality, investors needed to rethink how they went about their profession.
The “dark side” of globalisation had been revealed, with increasing polarisation within societies, particularly in the major developed markets. “We haven’t seen this level of inequality since the 1920s,” he said. “At some point there had to be a backlash. I think it’s bugun. The question for me is ‘why did it take 30-40 years to show up in politics’?”
Inequality has an economic impact too, he says, because rich people save a higher proportion of their wealth or income, so not as much goes to consumption which keeps economies ticking over.
Demographic shifts mean that more people are retiring from the workforce than entering it and the only way to improve this issue, without an increase in population, is through productivity increases. Productivity generally has not improved for 10 years or more. “The developed economies are stuck in a low-growth environment,” he says. The politics of western countries in Europe and the US, also, are dictating less immigration, not more.
And debt levels have reached saturation.
The easiest way to deal with debt is through inflation, which will require more aggressive fiscal policy in most countries and for monetary policy to probably remain loose.
But these forces are very slow to take effect, he says. A lot of investors are expecting some sort of return to normal, but Nauphal, who has been chief executive of Insight since just before the global financial crisis, does not think this will happen any time soon. “Maybe in 30 years or so we will be fine because technology will have worked its way through the system,” he said.
Although it is among the world’s largest fund managers, Insight does not try to be all things to all investors. It tries to focus on only those strategies and asset classes in which it believes it can excel. For instance, it got out of property investing some years ago because it did not believe it could add value above its peers.
It also got into farmland investing, including in Australia and New Zealand, because it thought that it could make a difference by bringing modern investment disciplines, especially in portfolio construction, to an overlooked asset class.
But Insight’s main point of differentiation from other big managers is its focus on outcome-oriented investing. It was one of the first – probably the first among the big global shops – to concentrate its theories and practices on the “decumulation” demographic trend through the development of various outcome-specific products and services, such as liability-driven investing.
Many parts of the saving cycle are turning into decumulation rather than accumulation, Nauphal says, and those people have different requirements. “We wanted to be the experts in decumulation… It’s about providing a true outcome. Something specific with a more certain return.”
The problem with traditional funds management focussed on accumulation is that it tries to maximise returns and reduce volatility. But when the investor or member wants an outcome, that is not the whole story. The investor or member needs more precision and accuracy from the process.
“I sometimes say, if you are going to sail into unchartered territory, as we are, I can’t give you a map. But I can give you a good boat.”
