By Charles Prideaux
What is ‘traditional’ asset management? When I started in this industry 25 years ago it was quite transactional – and it remained that way until around 5-6 years ago. By ‘transactional’ I mean that asset managers had certain products and that clients employed us based upon our performance and other credentials. We held regular meetings at which we discussed what we’d done and what we were planning to do in the future – and that was about it.
The contrast between then and now is like night and day. As I see it, the new era comprises three main dimensions:
The first is the market dimension. The word ‘unprecedented’ is overused, but by any historical standards, the past few years have been – if not unprecedented – truly remarkable. Developed central banks around the world have had to resort to an array of unorthodox monetary policies to avoid economic depression and while they have succeeded in restoring a degree of stability, we are regularly reminded of the continued fragility of the world’s financial system. The Eurozone in particular remains prone to bouts of panic as was evidenced by the recent events in Cyprus, where banks had to be closed for a week. It is a real indication of the exceptional situation we are in that such steps are necessary. While we believe the healing process of the global financial system is now under way, the patient still requires sustained treatment and further complications and setbacks are likely.
Next there is the structural dimension of the low rate environment. I spent part of my early career as an equity fund manager in Japan in the 1990s, so I have some experience of running money in a debtdeflationary environment. One of the things I learned is that the persistence of low rates makes for extremely limited opportunities and results in a greater emphasis on government policy to solve problems that the markets are unable to deal with. This is the situation we’re now facing in Europe. On top of that, the markets of course exert their own pressures.
This brings us onto the third dimension: regulation. There is a huge amount of regulation being worked on at the moment and it is vital that we as investors engage with those setting the regulations as effectively as possible to make sure our voices are heard. At BlackRock, we realised a long time ago that while we can have some influence acting alone, we are a lot more effective when we get our clients to speak up as well.
So we are clearly in a very different environment to the one we were in just five years ago, which means asset managers must also work in a very different way in order to help clients meet their goals. Whilst delivering performance remains crucial, gone are the days when managers could focus on product alone. Clients now expect asset managers to have a much better understanding of their strategic objectives and being able to answer fundamental investment questions such as “How do I prepare my fixed income portfolio for an eventual back-up in rates?” or “How can I achieve the returns I need while reducing the overall risk?”. Next generation asset management is complex and demanding. It involves having handson expertise in a wide range of classes and markets, but also areas such as regulation and government policy, and, of course, risk management. However, above all, it means having the humility to listen to our clients. Only then can we truly fulfill our fiduciary role of helping institutional investors meet the needs of their beneficiaries.
Charles Prideaux is head of institutional for EMEA at BlackRock
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