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Geopolitics and Global Business: What the Future Holds

By Jeanne C. Arnold

May 31, 2017

The challenges of navigating geopolitical developments while operating a global business took center stage during two key sessions at ICI’s 59th General Membership Meeting (GMM), held in Washington, DC, from May 3 to 5.

“Geopolitics are becoming much more important, because politics are driving so many economic ups and downs—and will continue to do so over the next few years,” said Ian Bremmer, founder and president of Eurasia Group. In a session titled “Managing Risk in an Unstable World,” Bremmer first talked about how global politics are affecting businesses worldwide and then engaged in a discussion with GMM Chairman Jim McNamara, president and CEO of Goldman Sachs Mutual Funds.

The End of the US-Led World Order

“I believe we have just entered into a ‘geopolitical recession.’ That is not actually a term. But it should be,” said Bremmer, “because the bust cycle is the end of the US-led order.” In his remarks, Bremmer explained that people in other countries are increasingly uninterested in living in a world where the United States continues to be the architect of global trade and the driver of global values and standards. Americans are less interested as well, he added. “A solid majority of Americans feel that global free trade hasn’t helped them, and they are no longer as dedicated to America’s tradition of promoting liberal democracy and free markets abroad,” he explained.

Bremmer was quick to add that this unwinding of the current geopolitical system did not happen because the United States elected President Donald Trump. “The unwinding was coming regardless of whether he was elected,” he said. “His inauguration simply accelerated it.”

If the United States isn’t going to be the leader of the free world, who will? The answer, said Bremmer, is no one. Instead, he explained, we will end up living in a world where countries such as Russia and China act as regional policemen, exercising their power and influence in their own backyards. 

A Tale of Two Wikipedias

China is the only large country today with a global economic strategy, stated Bremmer. The Chinese government, he said, is writing big checks to support infrastructure projects around the world and to create a new economic architecture in the region—“but the checks they’re writing and the architecture they’re creating is not about supporting liberal democracy or a free market. They’re about quid pro quos to support China’s economic, diplomatic, and strategic aims.” Those aims include supporting and strengthening such institutions as the Asian Infrastructure Investment Bank and the Chinese Development Bank, or helping create and participate in the One Belt, One Road initiative—a modern-day Silk Road that would connect China to Europe via Central Asia, Southeast Asia, South Asia, and the Middle East. All of these make up an alternative system to the US-led institutions and global economic architecture created after World War II, stated Bremmer. “Ultimately, China is not creating a new economic order,” he added. “It’s fragmenting the old one. For example, instead of having one global Internet, there will be a bunch of countries that are linking to the Chinese Internet—countries in which China has heavily invested. There won’t be one Wikipedia, but two: a global/US Wikipedia and a Chinese Wikipedia.”

Bremmer further warned that in an increasingly fragmented world where the United States is no longer the global leader, and where alliances and common interests may not always be apparent, it may be harder to build the consensus necessary to confront global issues, such as climate change and nuclear proliferation. Using the Paris Agreement on climate change as an example, he explained that, ultimately, the solutions will increasingly come from regional sources—mayors, governors, and business leaders, for example.

“The Paris Agreement didn’t get done because of President Obama or President Jingping,” he explained. “After failed summits in Cancun, Durban, and Copenhagen, mayors from different cities around the world came together and said, ‘Our governments aren’t getting this done, so we need to.’” This will be how communities and states deal with issues such as poverty and inequality in the United States, Bremmer added. “We need to fix the social security net. We need to find a way for people to live and realize the American dream again. The US government isn’t going to do it. It will be CEOs, mayors, and governors who come up with the solutions.”

Brexit: The Most Significant Political Risk Since the Cuban Missile Crisis

In the immediate aftermath of the United Kingdom’s vote in June 2016 to leave the European Union, Bremmer tweeted, “Brexit is the most significant political risk the world has experienced since the Cuban Missile Crisis.” Pressed by McNamara on this point, Bremmer explained that Brexit was the tipping point for the US-led global order, signifying that it wasn’t working anymore.

“Looking forward, I think there is a risk that the European Union and United Kingdom do not reach a deal, and that the United Kingdom ends up trading under the World Trade Organization’s rules,” he said. “Yet we’re still two years away from either that or another outcome. Until Brexit actually comes closer, the markets won’t care. But make no mistake—when we do get to Brexit, it will be a big problem.”

Brexit was also a key topic of concern during GMM’s Global Asset Management panel, which was moderated by Ted Truscott, chairman of ICI and CEO of Columbia Threadneedle Investments. During the panel’s discussion about Brexit, Aberdeen Asset Management CEO Martin Gilbert was optimistic that asset managers would be less affected than other financial services, such as banks. “As far as large asset managers go, I think we will be okay, as most large asset managers have operations in Ireland or Luxembourg—two of Europe’s leading investment fund centers. Yet, small or midsize funds that do not have operations in either of those two countries will find it difficult to sell into the European Union.”

David Semaya, executive chair of Nikko Asset Management, echoed Gilbert’s concerns. “One of the issues for small or midsize funds is that the barriers to entry are going up. The cost of starting and growing a business in Europe are higher than they used to be. For example, it used to be that distributors required a UCITS fund to have €100 million net asset value before they would invest in it and sell its shares. Now they won’t consider a fund with less than€200 to €300 million.” Semaya also expressed concerns about the “knock-on effects” from Brexit, including whether rules surrounding delegation of portfolio management to third countries, such as Japan, will stay the same.

Weathering Challenges, Finding Opportunities

In addition to Brexit, Gilbert touched on other challenges his company has recently faced, including a decline in emerging markets. “It’s been a tough time for us,” said Gilbert. “We have been very reliant on emerging markets, and for the past four years, we have watched money go out of our funds. We finally saw those flows change this past quarter, which has helped us recover.”

With the recovery in emerging markets, Gilbert said he sees opportunities in a number of countries, including India. Semaya agreed, acknowledging the challenges India presents, but adding, “It’s important to be in a market where there is capital formation, income growth, and, most importantly, the right demographics—where people are saving rather than decumulating. India has the population growth and the economic growth. In addition, the English language is there, which is important for building up that ecosystem.”

Semaya also discussed the long-term investment potential in Indonesia, where “you have a country with a growing middle class and a leader who is leading. Though it is dependent on commodities, there is desire to broaden their economy, which is why I think Indonesia is a good opportunity.”

Truscott wrapped up the panel by asking both men what advice they would give a small firm today. Gilbert jokingly responded, “stay small, don’t try and get big.” Semaya ended on a more serious note, advising firms to “innovate, innovate, innovate.”

Jeanne C. Arnold is managing editor at ICI.

TOPICS: GMMICI GlobalMutual Fund

A Tech-Enabled Future—and Present—for Investment Advice

By Rob Elson

May 30, 2017

The future of investment advice will lie at the intersection of technology and humanity, said panelists at ICI’s 2017 General Membership Meeting. But those panelists—Eli Broverman, cofounder of Betterment; Kelly Coffey, CEO at JP Morgan’s US Private Bank; and Ben Huneke, head of investment solutions at Morgan Stanley Wealth Management—offered differing views on how much of a role people will play.

Read more…

TOPICS: CybersecurityEventsFund RegulationGMMOperations and Technology

A 529 Day Primer: Do You Know What State Your College Savings Plans Are In?

By Christina Kilroy

May 26, 2017

You might not know that May 29 is 529 College Savings Day, or even what a Section 529 plan is. But if you’re a parent or grandparent concerned about future college costs, the day presents an opportunity to learn how 529 savings plans can help you plan for—and pay for—your loved ones’ postsecondary education expenses.

Read more…

TOPICS: Investment EducationInvestor ResearchMutual FundSavings

Cybersecurity at Work: I Know What You Know!

Peter Salmon

May 26, 2017

Part of a series of ICI Viewpoints covering cybersecurity issues.

In the previous installment of this series I mentioned that this post would address steps that you should take if your computer is hacked. Well, in light of the WannaCry/WannaCrypt ransomware outbreak, it seems appropriate to address not only what to do, but how to think about the threats facing us.

Read more…

TOPICS: CybersecurityOperations and Technology

Top Investment Strategists Sound Optimistic Notes amid Headwinds

By Rob Elson

May 25, 2017

Opportunities abound in today’s market and macroeconomic environment, and it’s up to fund managers to help their investors capitalize on them. That’s the outlook from a panel of world-class investment strategists sharing their insights at ICI’s 59th annual General Membership Meeting, held earlier this month in Washington, DC.

Read more…

TOPICS: EventsExchange-Traded FundsFinancial MarketsGMMInternationalMutual Fund

Average Expense Ratios for Index ETFs Have Declined

By Shelly Antoniewicz, Sean Collins, James Duvall, and Morris Mitler

May 24, 2017

In yesterday’s ICI Viewpoints post, we noted that our annual report on the asset-weighted average expense ratios of funds—“Trends in the Expenses and Fees of Funds, 2016”—showed that expenses for long-term mutual funds continued to decline in 2016.

Read more…

TOPICS: Bond FundEquity InvestingExchange-Traded FundsFixed IncomeIndex FundInterest RateMutual Fund

Average Expense Ratios for Long-Term Mutual Funds Continued to Decrease in 2016

By Morris Mitler and Sean Collins

May 23, 2017

ICI recently released its report on the expense ratios of mutual funds: “Trends in the Expenses and Fees of Funds, 2016.” This is ICI's first report that also summarizes expense ratios for exchange-traded funds (ETFs). 

Read more…

TOPICS: Bond FundEquity InvestingExchange-Traded FundsFederal ReserveFixed IncomeInterest RateMoney Market FundsMutual Fund

Solving for Data Transparency in the Retirement World

By John Randall

May 19, 2017

First in a series of ICI Viewpoints posts focusing on how to enhance operational efficiency using existing tools and practices.

One of the most important functions performed by ICI involves its role in bringing together members, who participate in a wide array of standing and advisory committees that focus on initiatives affecting the fund industry as well as the broader financial markets. This series will focus on the work of the operations and distribution advisory committees

Read more…

TOPICS: Mutual FundOperations and Technology

ICI Study: Closed-End Fund Assets Were $262 Billion at Year-End 2016

By Shelly Antoniewicz

May 12, 2017

ICI recently released its annual report on the closed-end fund market, which analyzes data on closed-end funds, a type of registered investment company that issues a fixed number of shares that are traded on a stock exchange in the over-the-counter market.

Read more…

TOPICS: Investment EducationInvestor Research

Stevens Calls for Measures to Enhance Economic Growth

By Rachel McTague

May 5, 2017

With America striving to achieve greater economic growth, Paul Schott Stevens, ICI president and CEO, called on the Securities and Exchange Commission (SEC) to enhance funds’ essential role in the capital markets by proposing new rules to govern funds’ use of derivatives and by creating a harmonized best-interest standard for advisers providing investment advice to retail and retirement investors. The ICI chief also urged the SEC to adopt a fund disclosure regime for the 21st century.

Read more…

TOPICS: EventsFinancial MarketsFinancial StabilityFund RegulationGMMMoney Market FundsMutual Fund

Jeff Immelt and GE’s Bid to Own the Future

By Rob Elson

May 4, 2017

“I just couldn’t explain why we owned NBC.”

In only eight words, GE’s Jeff Immelt summed up one of the major catalysts for his transformation of the company during his nearly 16 years as president and CEO. His enlightening, lighthearted conversation with ICI President and CEO Paul Schott Stevens at ICI’s 59th Annual General Membership Meeting—which began yesterday in Washington, DC—dove deep into Immelt’s thinking behind this transformation, the company’s major decisions during his tenure, and his big plans for the company’s future.

Read more…

TOPICS: EventsGMMInternational

Retired General Stanley McChrystal: Service, Connection, and Flexibility

By Todd Bernhardt

May 3, 2017

When General Stanley McChrystal took over the Joint Special Operations Command (JSOC) in 2003, he was fully steeped in the US Army’s command-and-control philosophy. But he soon learned the need for adaptation. At the 59th annual General Membership Meeting, the retired general spoke of the importance of service, connection, and flexibility.

Read more…

TOPICS: GMMInternationalMutual Fund

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