Northern Trust
Clive Bellows, head of global fund services EMEA at Northern Trust, offers insights into what fund managers should be aware of, as well as the role of technology and ETFs
What trends are you seeing that fund managers should be aware of?
There is a focus on delivering value for money; the expense ratio of funds is important, coupled with making sure that the right product is directed at the right investor type. The Markets in Financial Instruments Directive (MiFID) is on everybody’s minds, rightly so. Another factor is making sure that distribution is targeted in the right places for appropriate reasons.
How is technology driving change in the industry?
Technology continues to play an important role in a number of ways and there are clearly new ways of managing money that involves technology. However, the types of products that are being delivered or continue to require, not only the managers, but the matrix of service providers to also invest in technology, relates back to efficiency.
Additionally, some of that is about opening up new markets and making it easier to distribute and also collect data on the funds.
What challenges are you seeing around technology?
It is really easy to jump into the latest blockchain or robotic project, and you have to make sure that you know what your end objective is.
It is important to decide whether you want to develop technology as a company or use a vended solution or partner with somebody to do a combination of both. As you’re going through technology change, it is important to remember to keep the lights turned on and have business as usual (BAU) constant whilst you are managing that. Changing, evolving, and running a business at the same time is easier said than done.
What impact are the increased compliance and regulatory burdens having on asset managers?
The new wave of regulation over the last ten years has been pretty relentless, so whether that’s UCITS, or the Alternative Investment Fund Managers Directive (AIFMD), or MiFID, I do think that regulatory impact of change for managers is starting to slow down.
A lot of regulators around the world recognise that they’ve done a lot in reaction to the financial crisis and for all of the right reasons. I do think that there is a realisation that the regulation that has been put in place over the last five or six years needs to be allowed to settle down.
It will be tweaked and it will evolve but I think a lot of the fundamental regulatory change we have seen has in fact already done that and hopefully, that will give the industry a chance to get on with doing what it should be doing—managing money and delivering value to investors.
How has the industry had to re-think its approaches because of technological innovations around artificial intelligence (AI), automation and data analytics?
It has never been easier for managers to have access to data, whether it be closing a number of their funds, research, or more up to date and quicker notification of what is going on in their portfolios. You can almost have too much data, you need to get the data at the right time of the day and in the right formats in a way that it is easy to digest.
You can end up going down a lot of cul-de-sacs if you don’t set out a clear strategy but there has never been more data available for money managers than there is right now.
Our industry has been around for a long time and for me, the fundamentals of delivering money and delivering values to investors haven’t changed. There are different ways of achieving that now but that hasn’t changed.
Equally, some of the traditional ways of active management and picking the right stocks are still as valid now as they were 50 years ago. There are also lots of ways to invest now that didn’t exist then.
I don’t subscribe to the view that exchange-traded funds (ETFs) are going to be the only way of investing in ten years time. I think that will continue to grow but there is a place for strategies whether that be traditional management, private equities, or real estate. There are a lot of different choices out there.
What is your outlook on the investment industry, such as the prospect of ETF providers offering low cost, and low margin investment solutions?
They will continue to be valid and for most investors, some exposure to ETFs makes complete sense. I would still believe though that there is room for a percentage of a portfolio to be in other asset classes and other asset types.
As I said, I do not subscribe to the view that ETFs are the only answer but I don’t think we would all be here if we thought iShares was going to be managing every dollar available.
We have clients who have managed real estate portfolios and are delivering 10 percent year-on-year yield. I think any sensible investor is going to take a balanced view and they are going to have exposure to different ETF asset classes. ETFs are going to be important but there are still lots of other ways of managing money.
I think that there is an overemphasis in conferences like this (FundForum)—ETF is very trendy and has been for a number of years but there is a danger that we get over-focused on low-cost products, which absolutely have a place but the industry run the risk of ignoring other opportunities if we do that.
