Last week’s announcement by Threadneedle Asset Management that it has launched a multi-asset fund in direct response to the recent pensions changes announced by government is the latest evidence of the tectonic shifts taking place within the UK fund management industry.
First came the financial crisis, then the Retail Distribution Review and then the announcement that it would no longer be mandatory to buy an annuity on retirement.
The earthquakes caused by the first two are still being felt, while the full impact of the pensions changes are yet to be fully understood, but what is certain is that investors are increasingly demanding specific, actual results rather than just relative performance. And, as a result you have seen a rise in funds and strategies that present a clear outcome and the concomitant decline in the importance of benchmarks.
As Jeremy Roberts, head of UK retail sales at Blackrock put it to Portfolio Adviser recently: “Does a client with £20 000 to invest care about beating a notional benchmark? No, they want to be safe in the knowledge that their goal will be met, whatever that goal is.”
This is especially pertinent in a country like the UK, where baby boomers are barrelling toward retirement weighed down by the knowledge that they are likely to live longer than previous generations. And, as a result, the need not only for an income but also for capital preservation is becoming less and less negotiable.
Indeed, according to Roberts, one of the biggest concerns he has at the moment, is that despite these demographic realities, around 68% of people in the UK still keep their money in cash, “That is a problem,” he says.
Long term implications
In order to attract investors, to help advisers retain and grow their client base, asset managers are having to work increasingly hard to find ways of helping their clients, the advisers, provide suitable products to investors.
“We are in a new world of investments, but there remains too much focus on short term performance, we see performance tables that quote performance over one month, three months, six months, 12 months, but the end customer doesn’t have that short-term an investment horizon, they are looking 10, 12 years ahead; we need to align products and solutions with what the client wants.”
This means, he adds, that there is an increasing need to move beyond the world of only funds benchmarked against their particular index.
That is not to say that we will see the end of funds as we know them, Roberts is clear that advisers will continue to use funds as the bedrock of the portfolios they put together.
“Clients always need the building blocks to overlay their own asset allocation and financial planning to provide a solution to their clients. That won’t change,” he says.
But, asked his view of what the offering from Blackrock will look like in five years, he says: “Will we be working more closely with our clients to develop potentially bespoke solutions, multi asset solutions? Yes. Will our multi asset offering be broader in nature? Yes, index funds have grown in popularity and the power of blending index and active funds is being realised.”
And, he reiterates, all of these changes will have at their core, a desire for a solution, a particular outcome.
As a result of these shifts, discretionary fund managers stand to benefit, as do multi-asset and multi-manager funds, especially as financial advisers focus increasingly on the advice part of their business and outsource the fund selection and asset allocation parts. And, increasingly, it is likely that the market will see more funds tailored to a specific solution, be it an income in retirement, or a child’s university fund.
