05 July 2023
One of the attractions of the UK stock market is the fact that asset management and investor demands are constantly changing. There are marked differences if we compare and contrast markets and market trends today against those of just ten years or even five years ago. Consequently, all investors must be able to adapt their asset management focus to consider current and future changes.
While the term "evolving investor demands" may seem pretty generic, there are a lot of examples in recent times. These include:-
· Environmental, Social and Governance (ESG) investment
ESG is undoubtedly having an impact on asset management on a global basis, with a particular focus in the Far East. It would be wrong to suggest that the UK is not headed in this direction, although the journey may be slower than in other parts of the world. This also ties in with impact investing and responsible investing, basically, the need for companies to have a social conscience. There is already evidence to suggest that going forwards many governments and public bodies will only provide funding for those with a viable ESG policy. This should focus the minds of listed companies!
· Increasing demand for digital solutions
Technology is having a significant impact on asset management and how funds are allocated. Digital solutions allow automated adjustment to investment funds to ensure that a particular asset management blueprint is always followed. We have also seen increased demand for user-friendly trading and reporting platforms, with many services provided by new FinTech companies.
The use of AI and machine learning is a central plank of many digital solutions today which has caused some concern among investors. In reality, these types of cutting-edge technology have been used behind-the-scenes for many years but have only recently been made a little more public.
· Transparency and accountability
We recognise that stock markets worldwide are based on transparency and accountability, which has not changed. However, the Internet has significantly impacted how investors view certain companies and sectors and how they report information to the broader public. This has increased demands for robust governance and risk management frameworks concerning asset management. While we have seen vast changes of late, many believe we are simply scratching the surface with lots more to come.
· New asset classes
Recently, we have seen the introduction of new asset classes such as green technology, FinTech and digital assets such as cryptocurrencies. Inevitably, where there is an underlying demand for new asset classes, there will need to be a future regulatory structure. This is best demonstrated by looking at the subject of digital assets. While there is still some debate about the future regulatory system, there is a strong appetite from investors and institutions (as a partial knock-on effect). Consequently, a global regulatory framework will emerge at some point.
Historically, while new trends regularly emerge across investment markets, not all of these are permanent. However, regulators need to react when a particular trend or movement in the asset management sector attracts deep-seated interest from investors. It also forces the investment sector to accommodate these new trends, which can mean changing investment strategies, asset allocation or creating focused investment vehicles.
There would be huge differences if we were to compare and contrast asset management trends today and every decade going back to the 1980s. As we discussed above, technology, transparency, social responsibility, governance, and the impact corporations have on the environment will be front and centre in the future. It is essential to find an investment manager/asset management company up to speed with the latest trends/challenges and able to adapt.
There are many dinosaurs in the investment world, and we know what happened to the dinosaurs!
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