Our interpretation of 2021 and the outlook for 2022
Market Review 2021
What a year 2021 has been for decision making! We remained under stricter restrictions for the first half and the promising end to 2021 we had envisaged was disrupted when the Omicron variant surfaced! Encouragingly, medical professionals are stating that a third booster can defend us if we were to catch the virus. A massive KUDOS to pharmaceutical companies for accelerating developments of these crucial vaccines that have saved millions of people worldwide. Starting from researching the nature and habits of the drug, to the production of vaccines, their approvals by medical agencies and then finally the point governments announced their vaccine administration policies, the decision making must have been extremely complex within this chain of many stakeholders.
So, what has happened in asset management during this time? A lot of the focus has been on ESG. There is certainly a shift in industry thinking and attitude towards integrating ESG, with growing appreciation that failure to integrate ESG into your firm will be commercial suicide – as we alluded to back in November 2020! It still appears that some firms have not quite managed to communicate their ESG position with regards to what their beliefs are, and what matters to them. Just recently in November 2021, FinDatEx published version one of the European ESG Template (EET). This is a key industry template for European funds as it greatly assists distributors in understanding key ESG information relating to products they sell on behalf of manufacturers. What you don’t what to hear is that it’s data hungry and currently has over 600 data fields.
Regulatory change has always been a preoccupation for firms. The constantly shifting dates for regulations, such as PRIIPS or the SFDR level 2 disclosures, were both welcome and perhaps a frustration for some. As a resolution for 2022, will regulators be thinking of how they can arrive to a thought through and realistic implementation date?
The demand for IT resourcing skyrocketed as a result of many people working from home. We saw a focus on adopting machine learning and artificial intelligence, and a general increase in ecommerce activity. It’s estimated that within the UK, demand for IT professionals increased by 10% in the first half of 2021.
Several firms resumed their strategic initiatives in earnest, with business model optimisation being at the forefront where firms are looking to integrate efficient technology solutions. There is also a strong expectation of growth in the wealth management sector which has benefited firms like FNZ given their perceived market leading digital capabilities. Elsewhere, with several services typically outsourced, such as regulatory reporting, portfolio analytics and other middle office services, thoughts are starting to creep into senior managers minds as to whether they could further rationalise their suppliers given the increased digital market capabilities. The benefits here are significant, ranging from reducing the oversight spend on supplier to better data management. The European Banking Arrangements (EBA) on outsourcing also shine a spotlight on this.
In addition to BAU, delivering effective decision-making in terms of the firm strategy, initiative prioritisation and sequencing, and accompanying resource to support, remains a challenge. How do you rate your decision making in 2021? There are so many talented industry leaders however their performance is somewhat compromised, chiefly due to a lack of ‘time to think’. How will you address this in 2022?
What are the key themes we expect in 2022
Focus areas in 2022
Ensuring your ESG framework is effective
Your ESG strategy should be driven by your strong conviction on what impacts long-term value, your mission as a firm, and your capabilities. You can create an effective framework by addressing the following:
- What are our clients’ thoughts and how do we engage them?
- What is the impact of integrating ESG factors into our current investment process, and how easy is it to amend this process?
- How does our policy address geo-economic, social, and political issues?
- Will we start to see more carbon taxes, and can our portfolios influence carbon footprints?
- What companies and sectors will be classed as stranded assets, and when?
- Can we make good risk-adjusted returns whilst making a social or environmental impact?
Educating yourselves, your teams and your clients, will be integral in achieving an effective ESG framework.
Preparing for regulatory change
With the effective dates for regulations such as PRIIPs and SFDR level 2 disclosures fast approaching, it’s important for firms to ensure they can source the required data in a scalable manner. Identifying service partners that have good capability to support your products is critical. We envisage there will be numerous data gaps in satisfying SFDR Level 2 disclosures for obvious reasons. Other key areas of focus will be the amended Delegated Acts (UCITS, MiFID II, AIFMD et al), UK Consumer Duty and UK IFPR. The undertone in all these regulatory objectives is to make information clear, accessible, consistent, appropriate, and transparent.
It’s becoming apparent that the flexible model of working may be the norm going forward, although many firms still prefer for their staff to come into the office regularly for team bonding and for osmotic pollination of ideas. Firms should still be cognisant of the talent pool living afar, that may also not prefer travelling to the office. How do you make your firm an attractive career destination, whilst fully embracing flexible working arrangements, and retaining a collaborative culture? Also, how do your staff learn from each other?
Covid presented a complex set of decisions that required careful integration of input from many different stakeholders. The industry’s ability to succeed on delivering the above, and other initiatives too, will be dependent on how decisions are made. For example, ask yourselves how you arrived at your ESG framework both at a corporate and product level, and how the two relate. With regards to SFDR, ESMA underestimated the effort and impact of its implementation, proving that inadequate analysis was taken in providing a realistic roadmap to the industry. How do you coordinate the delivery of your ESG strategy whilst preparing for SDFR?
Cash remains a finite resource for everyone, however a stringent focus on spend efficiency can be detrimental in your ability to operate optimally or find ways to improve your business. Ensuring that your planning is fully considered, and that your teams are also adequately supported will assist you in meeting your business goals and maintain a culture that fosters success.
It’s important for staff to have ‘time to think’ about how they perform their duties. With a busy year ahead of us, this approach allows your teams to operate effectively, and it creates opportunities where staff can identify areas where your business model can be improved. No doubt there will be numerous firms looking to integrate new fintech solutions too.
On reflection, we have had a successful year, and our team will be powering down over the festive break and will be back powered up, with even more fabulous team members, to assist you in meeting your goals in 2022.