At a recent panel hosted by BlueChip Communication, industry specialists from funds management, venture capital and marketing came together to discuss the challenges facing fund managers and superannuation funds in 2021 and beyond. Specifically, how to grow funds under management in a COVID-19 disrupted Australia.
Joanna Davison, CEO of the Fund Executives Association (FEAL) chaired the panel, which was made up of myself, Tim Samway from Hyperion Asset Management, Ben Chong from Right Click Capital and Victoria Turner from Blueturn Consulting. You can read more about the panel here.
Joanna Davison: FEAL
A changed landscape with new challenges
Joanna began by raising some of the challenges facing the industry as a whole – how the financial services landscape has changed for investment managers and superannuation funds and what the keys to success are. We’re heading into a tough and different environment for superannuation funds, and the challenges for investment managers targeting these funds will be significant.
Joanna listed six themes she believes will influence the sector moving forward.
- Increased pressure on fees - Funds are facing pressure to perform against league tables and increased scrutiny, including ranking by returns net of fees will continue to encourage consolidation. Times will be tough for benchmark-aware (including index) funds, because their sole point of differentiation will be fees.
- Demonstrating performance will therefore become more difficult for some funds, and as a result, funds will re-allocate budgets from listed to unlisted opportunities and move towards internalising operations. Passive funds are attractive from a fee perspective, but those managers which deliver alpha from active management (and a differentiated product) will arguably have more success.
- Alternatives will become more attractive because they are hard to replicate. There will be a switch from listed to unlisted assets – but investors need to be patient. A 3-5-year timeframe will be the norm.
- Flexibility will be rewarded which means being at the forefront of technology which can provide access to portfolio managers, and bypass intermediaries.
- ESG is now a given – it must be part of the process, not just an overlay. And the expectation is that fund managers and super funds can actively demonstrate what they are doing.
- Education is key – the silver lining of the early release scheme is that members are more engaged. It has reminded members that their super is their money so there is an opportunity now to reach out to members and lock in that increased engagement through education.
Tim Samway: Hyperion Asset Management
How do you build trust when you can’t shake hands (or have a coffee together)?
Tim started by saying that building trust is like magic, it happens best in person, and takes time. It’s a face-to-face activity, and even with the ability to deal face-to-face, some mandates take 10-years of relationship building before someone entrusts you with their money.
Technology has made the change to work from home and online interaction preferable and permanent for some people. There are some upsides for all of us as we are all much better at lots of technology we haven’t used before.
The challenge however is that there is a big difference between reaching out to people you already know and have met face-to-face to keep a connection going, compared with creating the connection.
Other major issues include:
- Massive inter-generational wealth transfer is about to come hit the market, in fact it’s already started, and the younger (soon to be richer) recipients of the baby boomers’ fortunes have a very different view of the responsibility of fund managers to change the world.
- ESG - 5 to 10 years ago no one was talking about ESG in the first five minutes of a meeting, now they are, and young rich people are asking hard questions about what businesses are doing to address challenges like climate change, diversity and inclusion.
- Funds management is a scale game – there are no barriers to entry, but the barriers to success are huge, including governance, compliance, due diligence to operating procedures, ratings, platforms. The path to success is increasingly difficult.
- Fees are under pressure but consistent performance can mitigate that pressure – institutional clients focus on outcomes, not on fees. Hyperion is never questioned on fees. A differentiated product which offers good outcomes should be the focus, and this is a product which financial advisers will also back.
- Distribution is still important. Great performance is only half the story and distribution is the second half.
Carden Calder: BlueChip Communication
How do you profile, position and protect your reputation in 2021?
- Share your Intellectual Property (IP) until it hurts. Clients often believe that their investment process is proprietary, but in many cases, it isn’t. It’s the same process that other funds managers use. Open communication and transparency are key to building trust, so taking the leap of faith and sharing is important.
- Find new stories that resonate with clients, because that's what building trust takes. These stories must be defined through the eyes and ears of your end-user, not your star fund manager or your own.
- People are more engaged online than ever before, so seize the day, it can’t last. Prior to the pandemic, technology was driving more interaction online, and COVID-19 has absolutely accelerated that process. Engagement is high now, your audience is bigger, and the cost of reaching out to them is lower.
- Find new ways to stand out with a strong narrative and a differentiated offer, for example the way that private equity is now marketing to family offices.
- Reputation risk is not lining up with investor expectations.
Ben Chong: RightClick Capital
Attracting FUM as a lean start-up
- Too much money isn’t necessarily a good thing because the more you have, the more difficult it can be to achieve the returns expected, so taking large institutional mandates can pose problems.
- Super funds have been creative in how they reduce fees. They invest a certain amount at a certain fee level, and then co-invest as a partner on a separate fee basis, to achieve an average fee level which is acceptable.
- Venture capital is high touch, it takes a lot of time. Clients are looking at innovative ways to lower average fees over the life of the investment.
- Education is necessary now, given some of the more experienced fund managers were burnt in 2000 and 2001 and they don’t want to touch venture capital – so part of our job is to educate them about how to measure success.
- Consistency is key and getting the message out there relies on repetition of a consistent message.
Victoria Turner: Blueturn Consulting
How media business models have changed
Funds management hasn’t gone on the digital journey yet. The lessons in other industries such as media include:
- Moving away from giving content for free to building a subscription business where people pay and stay.
- Digital should be central to the proposition, not a separate offering.
- Make advertising as targeted as possible, focus on outcomes not transactions which are by their nature short-term.
What are the opportunities?
- Make digital marketing core to what you do. Develop a customer relationship strategy which nurtures current and potential investors to the point of purchase through content.
- Use technology to remove friction to make it easier to invest, which means you need to fully understand the path to purchase.
Carden Calder is Managing Director and Founder of BlueChip Communication.