The first is a move toward a greater focus on outcome-oriented investment.
Writing in the group’s first set of results since its listing in June, Faulkner said that many of the significant changes being seen within the investment industry currently, are the result of an increasing focus by both clients and their advisers to define more explicitly what they are trying to achieve.
Faulkner explains, that while, historically, the industry has tended to define the products it wants to offer, these products were not necessarily what the clients actually needed.
“Outperforming a global equity market index by 5% may not be helpful if that market has fallen 20%. Clients have now realised that their outcomes may not be met by these products. They are now spending more time understanding and defining the financial outcomes they require, and then requiring investment houses to deliver on them.”
“This is the reason why we are seeing strong growth in fiduciary management and the use of derivatives (to hedge both liability-related risks and equity exposure,” he adds.
The second trend evident within the market, Faulkner says, is the intensifying of standards against which investors are held.
“The industry has often found it difficult to explain to clients whether or not the work they are doing for them is going well. Many successful investment strategies work very well over a full market cycle, but clients are not able to ignore the quality of the journey on the way to long term success. They are therefore evaluating more frequently and in more detail whether the investment strategies they are using are effective, or if there is cause for concern,” he explains.
Further to this, Faulkner says, clients and advisers are also considering more carefully what role they want in the investment decision-making process.
The final trend identified by Faulkner, and another reason why the group decided to list, is that clients are increasingly demanding other services alongside the pure asset management service.
“The precise nature of these services depends on the client, but they often include a variety of advisory services, analytical support, risk evaluation services, or investment views that do not relate specifically to the mandate in question,” he says.
According to Faulkner, all three of these trends are at different stages of development and, by no means, dominate the industry. But, he adds, they are likely to continue because they are in the interests of clients.
“It's rational for a client to define a basis for governing assets that does not lead them to stay with an underperforming manager for years, and it's rational for a client to secure a broader range of services within the same fee – this shifting and evolving behaviour is the normal course of events in other industries. The ability to adapt to these trends successfully will prove to be a competitive requirement.”
And, he says, in order to be successful in the wake of these shifting trends, investment managers, River& Mercantile included, need to have five core skills:
- Investment decision making and execution skills that add value
- The ability to define a client’s financial objectives in sufficient detail to effectively engineer a portfolio
- Engineer together a variety of investment decision-making skills to meet the financial objectives
- Engage with the client in the context of their own governance arrangements, to deliver the investment proposition
- Provide additional services where required alongside the mandate
For the six months to end June, the group reported a 29% increase in aggregated mandated AUM/NUM to £18.1bn from the end of 2013.
“Statutory net profit after tax before discontinued operations (unaudited) was a loss of £1.4m, after charging £4.6m of expenses arising from the IPO and restructuring in June 2014,” the group said, while statutory earnings per share, before discontinued operations (unaudited) was a loss of 2.44 pence per share over the period compared to a profit of 17.01 pence per share for the full calendar year last year.