Under the high ceilings of what used to be the City of London School for Boys but is now home to one of JP Morgan’s European offices, financiers and asset management leaders gathered last week to hear about the future of the industry at the Investment Horizons conference.
Opening speeches by Patrick Thompson, chief executive officer for EMEA at JP Morgan Asset Management, and Gareth Davies, Shadow Financial Secretary (Treasury) Conservative MP, welcomed the new government’s focus on growth. They expressed that, despite what they felt was a controversial budget, the industry was central to the country’s economic path to recovery.
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The first panel of the day, The View from the Top, focused on adapting to changing customer demands, the effective deployment of technology to increase competitiveness, and ESG integration.
Sonja Laud, LGIM’s global chief investment officer, highlighted that there will be “more disruption over the next 10 years than [the industry] has seen in over the past 50.”
Tech is expensive; make it work or bow out
On technology, panellists agreed that using it to adjust to customers’ demands, greater business costs and regulatory changes was essential to stay competitive.
“Productivity per head has to go up, otherwise you will not be able to make it work […] and AI will need to be part and parcel of what you’re doing,” Laud noted.
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By GlobalDataKnowing how to navigate the high upfront costs of of AI implementation, however, will be crucial.
Fabiana Fedeli, chief investment officer of equities, multi-asset and sustainability at M&G Investments, highlighted that “many of us will be wasting a lot of capital on AI and, frankly, not seeing the return on investments that we should see. So, it could significantly change the face of our industry when it comes to who’s going to be out there a few years from now.”
Having quality data to inform generative AI and large language models will be an essential part of this process. It is the foundation of successfully deploying this type of technology, so “if you don’t have a strong data set to begin with, well, frankly, any updated analytics is not going to help,” Fedeli added.
Meanwhile, Edward Park, chief asset management officer at Eugen Partners, explained that he is focused on how asset managers can use technology to deliver “high levels of personalisation at scale.” Using technology in this way will allow firms to stay competitive and continue appealing to clients whose needs have evolved.
The environment matters, but we have to be practical
Everyone seems to agree that the ESG investing hype from a few years ago has died down. Public denouncements of greenwashing, global conflicts and poor returns have all affected the way that asset managers approach the subject. At the conference, a new vision took form as panellists were warily asked about the role of the environment in an industry that is often criticized for not doing enough.
“There will be limitations,” to what asset managers can do in breaching ESG topics, Laud said. “The actual purpose of the industry hasn’t changed. We’re here to deliver credible investment solutions for our clients to meet their financial needs. That hasn’t changed, and that will not change.”
What the industry can respond to, however, is client demands. If clients want more ESG investments incorporated into their portfolios, that is where the industry can step in.
The underperformance of ESG investments in 2022 and 2023, paired with a shock to oil prices caused by Russia’s invasion of Ukraine dealt a tough blow to a more utopian vision of what the trend could mean for the industry.
The lesson the industry seemed to take from this was about changing the investment philosophy behind ESG from exclusion to engagement.
“Can you engage with companies so that they will change their strategic direction of travel? […] That’s where financial materiality comes in,” Laud said.
Fedeli echoed this sentiment. She added that there were engagements and “specific preferences” from clients that “sometimes you can’t help,” alluding to those investments often criticized by the public and activists.
“I think the industry is moving more and more towards trying to change and instigate positive change, as opposed to totally ignoring part of the world because it’s not good enough, because it’s not clean enough, because it doesn’t look good on our books,” she concluded.
Michelle Ostermann, CEO of the Pension Protection Fund, highlighted the opportunity that long-term investment products like pensions can create in terms of investing more purposefully.
The capital that asset owners handle is “fiduciary motivated, meaning it’s in the best interest of many that are beyond just investment return, and it’s often driven by some sort of [..] purpose that can often be of a social nature,” she noted. This creates an opportunity to “take different risks that have different horizons.”
Park remarked on how, following the underperformance of 2022, it was likely that there would be less discussion about ESG but “that doesn’t mean the work stops in terms of integration.” He also noted that without “industry-wide collaboration agreement,” ESG interest can “feel quite performative.”
The outlook for the investment industry at the event was optimistic but alert. Changing business environments can feel dangerous, and, as Fedeli said, there will be winners and losers, but many also see it as a foreground of opportunity for innovation and collaboration. There is an eagerness to collaborate across industries and with the public sector, given the UK government’s focus on spurring economic growth. As many speakers said throughout the day, “Risk is back.” Take that for what you will.
