At the most superficial level, the global economy appears to be in relatively good shape. In a June 2018 statement, the World Bank’s outlook was reasonably rosy, predicting the global economy would expand by 3.1 percent during the 2018 calendar year. The estimate was attributed to steady growth in the world’s developing economies and a recovering commodities sector boosting major industries elsewhere. For the world’s investment management firms, this might have been an exciting prospect; gradual growth across a variety of sectors should create plenty of opportunities for significant returns on investments. The reality of the situation, however, is nowhere near as simple.
As well as having to adapt to new regulatory requirements, investment managers are being forced to re-examine their portfolios and investments as a result of global economic instability
Alongside the World Bank’s prediction of growth came a number of warnings. Activity in advanced economies is expected to grow by 2.2 percent in 2018, but an easing of growth to only two percent in 2019 is anticipated. This is largely due to central banks gradually removing the stimulus efforts that were set up in the aftermath of the global financial crisis. Adding to this muted expectation are the many current threats to the global economy: US President Donald Trump may have enacted a significant number of pro-business policies, but his initiation of what has become a trade war with China threatens established global supply chains and will certainly shake up the current economic status quo.
Over in Europe, the deal surrounding the UK’s departure from the EU is still up the in air. Indecision from both sides, further complicated by a growing movement requesting that a second Brexit referendum be held, continues to create doubt as to what the operating environment for Europe’s businesses will look like in the coming months.
For the investment management industry, this complex situation has prompted many difficult decisions. In recognition of the firms best equipped to respond to this uncertain environment, the Mrassociates Investment Management Awards have sought out the industry’s most adaptable operations. These awards recognise those firms that have shown prescience and adaptability over the past year, but also provided clients with a welcome sense of certainty. Our winners have shown creativity in the face of tough odds and have distinguished themselves as being a step ahead of their peers in the financial services industry.
Rules of engagement
The major challenge facing investment managers is the drastically different global regulatory environment that is threatening to emerge. The EU is already partial to introducing ambitious and sweeping regulations; the UK’s exit from the union brings the potential for even more dramatic shifts in priorities and policies. Additionally, as the US continues a campaign of destabilising the global trade market, there are an untold number of challenges for companies to navigate. In both cases, regulation is altering the way companies can do business. Methods that were tried and true just a few short years ago – even after the dramatic changes prompted by the global financial crisis – could soon cease to be effective.
The EU has already experienced a shake-up this year, in the form of the General Data Protection Regulation (GDPR), which came into effect in May. Despite plenty of warning, many businesses were simply not adequately prepared for the new rules, and the change was met with confusion and disorganisation. In a case reported by The Independent, several smart-home devices such as light globes and thermostats suddenly ceased to function until new terms and conditions were agreed to by customers. The Los Angeles Times, the New York Daily News and the Chicago Tribune all had website outages the day the GDPR came into effect as they failed to meet the new requirements in time. A lack of preparation was the cause in all cases, demonstrating that even with plenty of notice, it is easy for major businesses to get new regulations wrong.
The investment management industry more specifically was tasked with negotiating the EU’s MiFID II framework. For example, Investment Week reported that small-cap fund managers have had to improve their internal research capability to overcome new restrictions surrounding the purchase of research from brokers. More changes like this are likely to occur in the coming year; KPMG’s 2018 to 2019: all change AMRI report highlighted the EU agendas that are set to affect investment managers most. This list included plans to extend the powers of the European Supervisory Authorities, to remove barriers to the cross-border distribution of funds, and to introduce a series of new sustainable finance policies. With several of these initiatives either still in development or in the process of being introduced, investment managers should be prepared to digest, navigate and respond to a lot of changes in 2019.
This is also all before the result of the UK’s exit from the EU is finalised. The outcome of the Brexit vote is still uncertain, and with the March 29 deadline rapidly approaching, firms may have to do a lot of work in a short amount of time to meet whatever regulations are thrown up on either side of the channel. Whereas uncertainty was thought to be the biggest threat ahead of Brexit, navigating complicated and confused regulatory environments may be where more companies stumble.
A line in the sand
As well as having to adapt to new regulatory requirements, investment managers are being forced to re-examine their portfolios and investments as a result of global economic instability. The biggest force behind this has been the trade policies of President Trump, particularly in terms of the US’ relationship with China. Responding to a trade deficit and levelling accusations of unfair practices, the US has imposed steep tariffs on hundreds of Chinese products. China swiftly hit back with tit-for-tat policies in terms of total economic impact. Trade partnerships that were previously certain are now very much up in the air, with both countries locked into a standoff that could drag on for months, if not years.
Asset managers must question how this will affect their portfolio. The obvious outcome is that companies trading between the US and China may have to find new markets where they can be more competitive. While tariffs so far have focused on industrial equipment and agriculture produce, many other industries could be impacted as the battle continues.
However, there are also opportunities to exploit. Historically, the countries that are not involved in a trade war see windfalls as larger powers fight. Their products may become a cheaper alternative that can fill the gaps in the market that inevitably develop. With neither China nor the US willing to back down, investment managers who can identify the industries that have the potential to benefit from the ongoing trade war could make significant profits. Doing so will not be easy; unparallelled insight, adaptability and courage to realise an investment’s full potential will be necessary. Those that can achieve this will be greatly rewarded.
The winners of the Mrassociates Investment Management Awards represent those investment management firms that are able to find success in unlikely places, while also adapting to complex and turbulent regulatory frameworks. Our panel of expert judges has developed a globe-spanning list of the finest operations within the sector. These businesses know what success looks like, and will navigate the coming year with ease.
Mrassociates Investment Management Awards 2018
Antigua and Barbuda
Global Bank of Commerce
Capital Asset Management
Bradesco Asset Management
BCI Asset Management
Fiduciaria de Occidente
Conseq Investment Management
La Banque Postale Asset Management
OTP Fund Management
Iceland – equities
Iceland – fixed income
Stefnir Asset Management
Setanta Asset Management
RESMI Finance & Investment House
VP Fund Solutions
Luxembourg – equities
ValueInvest Asset Management
Luxembourg – fixed income
BCEE Asset Management
AmFunds Management Berhad
HSBC Global Asset Management
Mexico – equities
Mexico – fixed income
SURA Asset Management
APG Asset Management
DNB Asset Management
Al-Hosn Investment Company
Al Meezan Investment Management
Sociedade Gestora dos Fundos de Pensões
Sberbank of Russia
Maybank Asset Management
March Asset Management
AXA Investment Management
UOB Asset Management
Garanti Asset Management
Aberdeen Asset Management
BMO Global Asset Management