The Latest Headlines From Across The Wealth & Asset Management Sector - January

2024-01-31 |  Prince Naruka

Welcome to our latest newsletter, we'll be exploring the top headlines impacting the world of wealth and asset management. 

In this month's newsletter, we will share the results from our 2024 Data & AI Executive Leadership survey, whilst reviewing last years' performance across active and passive markets. We will also be touching on the recent news around Bitcoin, and exploring the latest movements on ESG and Private Markets.

Here are our top stories…

2024 Data & AI Executive Leadership Survey summarised results: (Download Link)

Generative AI has become a hot topic in the industry, with many organisations seeking to adopt it to improve their operations and achieve more meaningful outcomes. Optimised Data Management is often perceived as the fuel to expedite the adoption of Generative AI. Our research at PEN has found that whilst company boards acknowledge the progress made in data management, it remains a top priority for 88% of organisations. To stay ahead of the curve, 82% of these organisations plan to continue increasing their data investments in 2024. On the other hand, our research also indicates that whilst boards expect immediate value from data investments, most Chief Data Officers (CDOs) need further support to address practical challenges related to data governance, ethics, and culture. For example, only 37% of our surveyed clients have successfully improved their data quality through recent efforts. This focus on addressing data challenges has prevented CDOs from fully exploring the potential of Generative AI and Data.

At PEN, we understand the evolving role of the CDO and have the expertise to support your journey to become more data-driven. We've helped numerous clients through this process, if you would like to learn more or discuss the survey results in more detail, please reach out to Barry Chapman.

The 2% question: Do asset allocators have to take bitcoin seriously?

Multi-asset investors are reassessing the risks of cryptocurrency after US regulatory changes, with some considering investigating bitcoin. The SEC’s recent approval of 11 spot bitcoin ETFs was seen as a significant moment for the cryptocurrency industry, following a long battle between the SEC and crypto advocates. Despite the green light from the US and giants like BlackRock, asset allocators have largely dismissed digital assets as little better than monopoly money. Advocates acknowledge that this is an industry still in its infancy and facing considerable scepticism. Charlie Morris, CEO of Byte Tree, views bitcoin as an alternative to traditional currencies and a hedge in an inflationary world. However, traditional fund firms are keen to emphasise the risks of bitcoin, as it is highly volatile and does not provide dividends or interest to cushion price swings. The spot price of bitcoin has dipped since approval; however Bitcoin's novelty and high returns attract investors, with some incorporating it into portfolios at a low-risk punt of around 2%. Despite the optimism, long-term adoption of crypto by investors remains uncertain, with the UK regulator not approving crypto ETFs yet, as well as the FCA's 2020 ban on the sale of exchange-traded notes containing unregulated transferable crypto assets posing as a challenge.

2023: The year returns recovered but active flows got hammered

New data shows that active funds in Europe experienced a significant outflow in 2023, with investors pulling €159.6bn from active funds, the second-largest annual outflow in the past 15 years. This year is vying with 2008 as the second-worst year ever for active. Asset prices rose substantially in 2023, with Fixed Term Bond funds being the best-selling active peer group. Passive products continued their rapid growth in the region, with inflows of €213.4bn in 2023, their second-best year on record. The top 10 sectors for new investment in 2023 were topped by Global Large-Cap Blend Equity, Fixed Term Bond, and US Large-Cap Blend Equity. Despite developed funds mostly featuring in the list, Global Emerging Markets Equity and India Equity made it into the top 10, with India Equity having the best year ever. At the other hand of the spectrum, the five UK equity sectors collectively endured their worst year on record for the third year in a row, with UK Large-cap Equity bottoming the list. Finally, Investors also pulled more money from mixed assets than any other asset class in 2023, resulting in five mixed asset categories making up the bottom 10.

Host of asset managers become early adopters of TNFD’s nature-related reporting

A total of 320 companies, including 47 asset managers, have committed to the Taskforce on Nature-Related Financial Disclosures' (TNFD) recommendations on nature-related reporting. The TNFD was first launched in June 2021 with the support of the G20 and G7, the recommendations made at the World Economic Forum in Davos propose firms make disclosures on the 4 categories summarised below:

  • Governance - The board and management should oversee nature-related dependencies, impacts, risks, and opportunities, as well as firmwide human rights policies and engagement activities.
  • Strategy - Organisations must identify the impact on business model, value chain, strategy, financial planning, and priority locations for assets and activities.
  • Risk and Impact Management - Processes should be established for identifying, assessing, prioritising, and managing nature-related risks in direct operations, value chains, and how these processes are integrated into overall risk management. 
  • Metrics and Targets - Metrics should be introduced to manage nature-related risks and opportunities, asses dependencies and impacts on nature, and set goals to evaluate its performance against these factors.

Was that really it for the value rotation?

Citywire's analysis reveals that the rise of the Magnificent Seven in 2023 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) has reversed the previous impact of the rotation towards value stocks. The end of the coronavirus pandemic and a rise in interest rates were supposed to set the stage for a multi-year rebound for value investors. However, value stocks in 2023 actually endured another painful year, with value underperforming growth by 24.9% last year, largely due to the astonishing gains of giant US tech stocks. In global markets excluding the US, value slightly outperformed growth by 1.8%. Since the value rotation was first called at the beginning of the Pfizer vaccine breakthrough in November 2020, it is still possible to argue value's outperformance, with the MSCI World Value index up 51% to the end of 2023, compared to 29.8% for its Growth counterpart. Although some investment chiefs suggest that value could recoup some of its historic underperformance, others believe growth stocks have become more immune to rising rates, and with central banks expected to begin easing monetary policy in 2024, it could lead to growth stocks outperforming value ones.

What BlackRock’s mega GIP deal means for private markets

BlackRock's $12.5bn acquisition of Global Infrastructure Partners (GIP) could signal a shift in the alternatives space, whilst bringing BlackRock's assets under management to $150bn. By the end of last year, BlackRock had $320bn in alternatives assets under management, with $50bn in infrastructure. Some investors have said many private markets businesses would not want to be owned by a larger asset manager, but it is also the case that running your own alternatives firm is becoming increasingly difficult due to liquidity scarcity, investor selectiveness, and increased regulatory scrutiny. Traditional asset managers see value in private markets solutions and with Infrastructure demand increasing, more and more asset managers are attracted to expand into the sector. On the other hand, Infrastructure has been highlighted as one of the top themes for 2024 from Global private banks, such as UBS, HSBC, and Citi, whilst there's been recent investments from the European and US governments, who introduced infrastructure packages such as the Inflation Reduction Act in the US and the NextGeneration EU recovery fund. Although infrastructure is not yet dominating major investors' portfolios, more organisations may be prompted to accelerate their timelines following Blackrock’s announcement.

Thanks for reading. If you’d like to discuss any topics in the newsletter that are specific to you or your company, do get in touch.

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