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ARCHIVE
Fresh Perspectives on a Changing World
By Miriam Bridges
May 29, 2015
Implications of globalization, the impact of the Millennial Generation on product development, the search for alpha in a world full of passive products—these were among the top priorities and concerns of the fund industry discussed by a panel of industry leaders at ICI’s 57th annual General Membership Meeting (GMM), held May 6–8 in Washington, DC.
Speaking at the opening session of the second day of GMM, the panelists at the “Facing the Future: Fresh Perspectives” session agreed with a sentiment commonly attributed to Benjamin Franklin: “When you’re finished changing, you’re finished.” The need to embrace change weaved its way through the candid conversation, moderated by Jenny Johnson, executive vice president of operations and technology at Franklin Templeton Investments.
The Changing World
A changing world has created an environment where the industry must evolve, said Omar Aguilar, senior vice president and chief investment officer of Charles Schwab Investment Management. “We have never lived through an environment like this...globalization, asset allocation, generational transfer as people retire and new people come into the workforce. It changes the way we think about our products, think about distribution, and how we adapt product development into solving solutions for clients.”
Other panelists stressed the need for people to think globally. “There will be very big differences geographically, and we need to help our clients look globally for opportunities. But people are afraid to,” explained Simon Mendelson, managing director and head of product development at Deutsche Asset and Wealth Management. “It’s fear of the unfamiliar.”
This global change also introduces massive regulatory complexity into the mix. “We are under the sights of lots of global regulators,” said Mendelson. “There are more than 170 points of regulatory oversight for us in the world.” Kara Kohler Hoogensen, managing director and product development principal of Principal Funds, agreed: “The biggest challenge is the regulatory environment and trying to navigate the multiple entities and schemes out there, and figuring out how to do it efficiently and effectively, to best meet the needs of our customers.”
Julie St. John, president and chief information officer for investment operations and technology at the Capital Group Companies, explained that meeting customer needs involves balance. “Having offices all over the world does add complexity to the operating environment...but it’s really [about] meeting local and regional needs. Figuring out that balance is critical.”
Despite these challenges, the panelists see opportunity for the fund industry. “The reality is, a fund is the best way for the average person to access the market,” said Johnson. “And there is more and more opportunity outside of the United States.”
Mendelson agreed. “Hundreds of people around the world want to invest globally, so that’s a positive side to the global equation,” he explained. Hoogensen added that there are opportunities presented by having access to global talent, saying, “I think one of the opportunities we have is bringing diversity of thought process into our product development.” Company employees in global markets, she explained, enable the firm to gain insights about those markets and “really get an understanding of what [customers] are looking for.”
The Changing Generations
Demographic developments also are driving change in the fund industry, said the panelists. “Millennials are going to start to take over the economic power,” Aguilar told the audience, adding that they will have a big effect on how the industry develops products. Yet events such as the dot-com collapse, the fall of Enron, the WorldCom scandal, and the global financial crisis have given Millennials “economic post-traumatic stress disorder,” said Mendelson.
It’s no surprise, then, that this generation is more risk-averse and skeptical than previous generations of investors, suggested Aguilar and St. John—yet they also rely deeply on communities for advice. “They were born texting, using mobile phones, so they tend to listen more to a community than to an adviser,” said St. John. Family is part of community, of course—Mendelson talked about asking a Millennial how he got his investment advice, and getting the reply, “I ask my dad.” Accordingly, Mendelson emphasized that the industry needs to reach out to families and figure out “how to help parents help their kids.”
The question, they said, is how can the industry encourage the Millennial Generation to save? Aguilar noted that “Millennials are pretty good at saving. They like to save. But the challenge for this generation is to stay invested. Sitting on cash is not going to help.” St. John offered that tools such as “gamification” should be considered for a generation that is so comfortable with technology. Think about “setting up a reward system so that they can get small goals,” she explained. “That’s the way to encourage that generation to save.”
Hoogensen expressed concern about the opposing forces in this landscape. “On the one hand, Millennials [like] immediate gratification and access to information. Yet most of what we’re trying to do is help individuals save for really long-term goals. So how do you marry this need for immediate gratification with this really long-term time horizon?”
New Words and Hashtags
As the flows into passive products and exchange-traded funds (ETFs) continue to be strong, there is growing interest in “smart beta” products. Panelists shared their thoughts on the implications for investors and asset managers.
Mendelson suggested that, though passive products will continue to attract the bulk of flows, not everything will be passive. “There will be a meaningful active component of the industry. I think smart beta will grow too. I think there will be three components of the industry: active, passive, and something in between.”
With a smile, Aguilar coined what may be the next new word in the active versus passive debate: balpha. “The surge in passive will continue,” he said. But “there is opportunity for combining smart beta with the current, traditional beta. I think about this as balpha. Think about beta, alpha. Basically in between,” he joked.
Johnson wrapped up the panel with a light touch, asking participants to offer advice to future fund leaders through Twitter hashtags. The results? #learnfrommistakes, #keepitfresh, #embracechange, #askquestions, #beopen, and #learntoadapt.
For other GMM highlights, please visit http://gmm.ici.org/gmm/2015/15_highlights.
Miriam Bridges is editorial director at ICI.
TOPICS: CybersecurityFund RegulationGMMICI GlobalMutual FundSavings
The IMF on Asset Management: The Perils of Inexperience
By Sean Collins
May 28, 2015
Part of a series of ICI Viewpoints about problems in the IMF’s analysis of the asset management industry.
In April, the International Monetary Fund (IMF) released its most recent Global Financial Stability Report (GFSR), including a chapter on “The Asset Management Industry and Financial Stability.”
TOPICS: Bond FundBondsEuropeFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundPolicy Research
Build Bridges, Not Walls: An Admiral’s Perspective on Global Security
By Rob Elson
May 27, 2015
If we are to strengthen global security, retired U.S. Navy Admiral James G. Stavridis says, we cannot continue to build walls—we must build bridges instead.
TOPICS: EventsGMMInternational
SEC Chair White Affirms Agency Has Tools to Address Risks in Industry
By Rachel McTague
May 8, 2015
The U.S. Securities and Exchange Commission (SEC) has the tools it needs to address systemic risks to the extent they exist in the asset management industry, said SEC Chair Mary Jo White at the opening session on the final day of ICI’s annual General Membership Meeting (GMM). White also announced that David Grim—who had been serving as acting director of the SEC’s Division of Investment Management—has just been named director of the division. White said she is thrilled that Grim, a 20-year veteran of the SEC in the investment management area, is taking the reins at a time when the Commission is moving forward to implement proactive regulations for the industry.
TOPICS: BondsCybersecurityEuropeEventsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationGMMGovernment AffairsInterest RateInternationalMutual FundShareholderTreasury
Nooyi’s Purpose, Pepsi’s Performance
By Rob Elson
May 7, 2015
We all have a moral compass. But for PepsiCo’s Indra Nooyi, “the moral compass of our lives must also be the moral compass of our livelihoods.”
Stirring words from the company’s chair and chief executive—and just a few of the many she delivered in a lively Q&A with Vanguard Chairman and CEO Bill McNabb at ICI’s 57th General Membership Meeting, which began yesterday in Washington, DC.
TOPICS: EventsGMMInternationalShareholder
Opinion: The Tax Threat to Your Mutual Fund
By Mike McNamee
May 7, 2015
Vanguard Chairman and CEO Bill McNabb sent “an open letter to all mutual fund investors” in the opinion pages of Thursday’s Wall Street Journal. His message: fund investors face a clear threat of higher costs, weaker returns, and a bailout tax to salvage other failing financial institutions—all if regulators get their way in imposing new rules on funds or their managers.
TOPICS: 401(k)Federal ReserveFinancial MarketsFinancial StabilityFund RegulationMutual FundRetirement PolicySavingsShareholderTradingTreasury
GMM Policy Forum: “It Always Comes Down to Trust”
By Todd Bernhardt
May 6, 2015
Over the 75-year history of the modern mutual fund industry, funds have helped to democratize investing, providing a tremendous array of investing options at a reasonable cost for millions of people. And given rapid advances in technology and the efficiencies that they can bring, the future looks even brighter, said Walter W. Bettinger II at the opening session of ICI’s 57th General Membership Meeting (GMM).
TOPICS: 401(k)EventsFund RegulationGMMMutual FundShareholder
2015 Investment Company Fact Book: Letter from the Chief Economist
By Brian Reid
May 4, 2015
A version of this letter by ICI Chief Economist Brian Reid was released today in our 55th edition of the Investment Company Fact Book.
This year marks the 75th anniversary of the Investment Company Act and the Investment Advisers Act—the key statutes under which mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts are regulated and governed. In 1940—the same year that Congress enacted these laws—the fund industry formed the National Committee of Investment Companies, the trade group that became the Investment Company Institute (ICI).
TOPICS: Financial MarketsFinancial StabilityFund RegulationInvestor ResearchPolicy ResearchRetirement ResearchTrading
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