Let’s all dance to digitalisation, democratisation and diversity
Western financial services players operating in mature markets are increasingly looking to eastern opportunities, heralded by the Covid-19 era.
Citi Securities Services estimates that foreign fund managers could access up to 10 per cent of China’s $40tn retail market for asset management by 2025. This equates to a $15bn revenue pool for managers including Schroders, Aberdeen and Franklin Templeton, who took part in the recent Cross-Border Distribution Conference held by the Financial Times.
Much of today’s vibrant wealth and asset management activity in China is modelled on the celebrity fund manager culture introduced by these firms in the 1990s. Franklin Templeton bombarded Asian TV screens with adverts featuring iconic stockpicker Mark Mobius, while Aberdeen’s Asian success is credited to the personal brand of regional boss Hugh Young.
Today’s fund-raising efforts of Chinese managers are played out on a much larger stage. Nearly 60 blockbuster launches are being rolled out in the opening weeks of the Chinese Year of the Ox. Feng Bo attracted $37bn in just one day to his new E-Fund equities strategy in January. The likes of Cai Songsong of Lion Fund Management boast their own social media fan clubs, contributing to the funds frenzy.
The financial world has a history of servicing hot money. Investors are still suffering at the hands of cult personalities who believed their own legends. Modern day ‘rockstar’ manager Neil Woodford recently issued an apology to out-of-pocket investors, prior to an expected comeback.
But on the positive side, Shanghai’s celebrity financiers communicate directly with disciples, creating a digital dialogue millennial investors crave and Western fund and wealth managers fail to foster. Their power and influence is feared in many societies. China’s clampdown on flamboyant Alibaba and Ant Group founder Jack Ma forced him to scale back after his personal profile began to eclipse that of political leaders and the state banks they supported.
Global appetite
The increasing size of the Asian cake will create room for all types of distributors. Global demand for funds — particularly those managed on an environmental, social and governance (ESG) basis — necessitates revitalisation of investment hubs, including Luxembourg, London and Hong Kong, all of which face issues.
Luxembourg is regularly attacked by rivals and press, alleging money laundering and regulatory lapses. It remains the premier hub for registering, constructing and distributing funds, but must better communicate its expertise throughout the asset management community.
London is fast losing financial influence, watching listings migrate to Amsterdam. The UK capital has so far failed to receive the EU regulatory ‘equivalence’ accolade, promised by UK leaders at the time of the Brexit vote. It must act quickly to create incentives and build a reputation taking advantage of the green finance trend.
Hong Kong, threatened by political instability and potential sanctions due to Chinese human rights abuses, is similarly challenged. While its Asian rival Singapore is quietly enjoying the fruits of the uncertainty, Hong Kong can still prosper as the hub for financing Belt and Road Initiative projects and distributing products across China’s Greater Bay Area.
The inter-centre rivalry in Europe and further afield, amplified by the new realism of post-Covid international relations, ignores the broader global opportunity set. This need not resemble a zero-sum game. There is room for London, Luxembourg, New York, Hong Kong and Shanghai to co-exist and prosper.
New normal
There is little doubt this ecosystem has been transformed by the Covid catalyst in 2020. This was the year in which ESG investing finally hit the mainstream and digital delivery of investments became de rigueur. Digitalisation and diversity are key elements of the social revolution which accompanied the pandemic’s spread.
But another ‘D word’ stands out: ‘democratisation’ was at the heart of Luxembourg’s success, after the Ucits directive to allow sophisticated strategies to be sold to EU retail investors was adopted in 1985.
It was also central to London’s bid to become the world’s leading financial centre when barriers came down after Big Bang in 1986, opening doors to foreign banks and labour.
These barriers are going up again after Brexit. Unlike the US, which is immediately re-opening, forging a closer relationship with both the EU and Asia after four years of economic nationalism under Donald Trump, the UK risks losing relevance.
Recent events show we cannot leave everything to the politicians. London’s financial industry should take some share of the blame for not adequately alerting political leaders to the harm Brexit would cause to its interests, so closely tied to Europe as well as Asia.
There is much we can do to improve interconnectivity between financial centres and fund managers, banks and fintechs, old and new economies, baby boomers and millennials. The three Ds of digitalisation, democratisation and diversity must provide the glue.
A collaborative ecosystem can create the path to post-pandemic prosperity, just as happened in the 20th century, when Europe was devastated and divided by the second world war. When populist politicians build walls to win popularity, it is the industry’s duty to extol the benefits of interconnectivity.
During a panel at the recent FT summit, moderated by PWM, Amy Cho, the Asia-Pacific chief executive of fund manager Schroders, spoke eloquently about seamless distribution of financial products across borders.
In the past, Ms Cho has advocated for diversity and social investing, evocatively describing the leader’s role in fund management: “As the host, the senior leader makes the move to take everyone to the dancefloor, and is obliged to make sure everyone feels safe and comfortable while enjoying the dance together.”
This is also the role our financial hubs can play in wealth and asset management, uniting tech companies, fund houses and private banks during the social revolution. Although social distancing and vaccine nationalism is currently the order of the day, the time will soon come when we must all learn to dance together once more.
