On February 8th, more than 150 funds experts gathered at the Mercedes-Benz showroom in the City of Luxembourg, for the 9th edition of FundsEvent. Local and international speakers shared their expertise and discussed the latest trends which are currently reshaping the funds industry. The use of technology and growing regulations were notably addressed during the morning.
The event was officially opened by Nicholas Davidson (Senior Portfolio Manager – Equities, AllianceBernstein) who stated: "New regulations and technology changes bring specific opportunities from the investors' point of view".
Macroeconomic Perspectives on the Global Economy
Jan Van Hove (Chief Economist, KBC Group NV) then took the stage to share his economic views for 2018. He started: "Stop talking about recovery. We are now in a time of expansion". According to him, recovery is everywhere: it started in the US, and the European area is now taking the lead. Moreover, this recovery is not only happening in developed markets, but also in emerging markets which are still a bit behind but have clearly joined the global upward trend. "Generally speaking, we are very optimistic: customer, as well as producer confidence is peaking. We are seeing an increase in investments, fueled by credit growth, etc. This is a fundamental difference compared to a few years ago", he highlighted, before adding: "Investments are on the rise and create jobs, which can sometimes not even be filled, a problem for many countries in the world". Yet, Jan von Hove wondered whether it means calm before the storm. He then listed 5 potential dangers: debt, reviving productivity growth, hard landing in the US economy (Trump's excessive stimulus increases the risks), monetary normalization in Europe and strengthening economic foundations. He then concluded: "Is this a fairy tale with a happy ending? We see a global economic recovery with strong foundations, an increasing number and severity of global risks, a fertile soil for financial markets, etc: we are very optimistic for 2018".
The necessity to regulate
"Fund Regulation: what to expect in 2018?" was the name of the presentation given by Jean-Pierre Gomez (Head of Regulatory & Public Affairs Luxembourg, Société Générale Securities Services). According to the compliance specialist, "most regulations are already behind us". He then named MIFID, PRIIPS and AIF, notably. "European institutions asked people how much they trusted financial institutions. In 2005 the result was as high has 53%, and fell down to 21% in 2012. They had to do something and had no other choice than to regulate. And actually, regulation drives business" explained Mr. Gomez, before adding that doing it in an efficient way was the main challenge: information must be clear, up-to-date and accurate. "We have now entered the second phase: consolidation and monitoring with more controls from regulators and on-site visits, with the use of new and automated tools when it comes to reporting, data collection, and many more. What about the future? In terms of funds, the Money Market Fund regulation will be applicable in July 2018 and will deal with shadow banking. Jean-Pierre Gomez ended his presentation by quoting Paul McNulty, former US Deputy General Attorney: "If you think compliance is expensive, try non-compliance!".
Investing in the new economy: robotics, automation, artificial intelligence and digital economy
Stephane Lago (Senior Thematic Investment Specialist, AXA Investment Managers) dealt with the new economy. He started: "at AXA IM, to select companies to invest in, we focus on 5 main thematics: aging & lifestyle, connected consumer, automation, CleanTech and transitioning societies. These all have one point in common: whether it is small, mid or large caps, in developed or emerging markets, they are all investable, with a potential growth of 10% year on year". He then put the emphasis on automation: "robots have been used for many years: they are flexible, cheaper and can now interact with human beings. We have seen an acceleration since 2014. It is related to demographic changes: in China, population is decreasing and the government has launched a large plan aiming at increasing the level of automation in Chinese companies: this is where the growth is". Then, Stephane Lago focused on the change in the way we consume, as online (and mobile) continues to take more and more market shares. "And it's not just a Millenial thing", he added, right before concluding: "And it is just the beginning of these multi-year thematics".
Bringing a private equity mindset to the public equity markets
Nicholas Davidson (Senior Portfolio Manager – Equities, AllianceBernstein) then presented the AB European Equity Portfolio. "Our investment approach consists in exploiting multiple themes – companies undergoing positive change, who have an underappreciated sustainable competitive advantage and have strong or improving industry dynamics – to deliver in different ways – market revaluation of cash flows/earnings, cash flow/earnings growth, and balance-sheet restructuring/return to shareholders" underlined Nicholas Davidson. The expert then shared a couple of examples for each themes, before describing AB's disciplined investment process: "first we generate ideas thanks to the fundamental insights from our industry analysts, then we select the highest-conviction ideas, and we end up with 40-60 companies to construct the portfolio".
"Small Chinese companies should be part of your portfolio"
The following presentation, entitled "Why Small Caps Will Drive Chinese Equity Returns Over the Next Decade" was given by Tiffany Hsiao (Portfolio Manager, Matthews Asia). She started her speech by stating that China had been on a lot of people's mind for a long time and that the country has seen a lot of fundamental changes in the last years: "In 2030, more than half of global middle class consumption spendings will come from Asia: you can see the trend coming! China has been the key driver of global growth for 10 years and will still be for the next 10 years. It should be part of your portfolio". One of the main changes is also that China has now become a service-based economy and that small businesses play an increasingly important role in the local – and global – economy. These companies are currently working on AI, big data, biotech, etc, and earning are growing and sustainable… Yet, the common investor still fears when it comes to invest in China. "Nowadays, China's small company universe is expanding for foreign investors, and, historically, small caps in China have been less volatile over the long run" highlighted Tiffany Hsiao. She concluded: "We believe small businesses are poised to benefit from China’s shift to a consumption-driven market-based new economy that is less capital intensive. In our view, small companies in China are perceived to be higher risk but the historical volatility of small-cap stocks in China are actually lower than the market. In our opinion, small companies provide opportunities for higher growth at lower valuations as they are less well known". Small companies are "undiscovered": it allows active managers to "uncover" opportunities to high quality companies with good corporate governance at cheaper valuation.
Through the morning, startups were invited to pitch their innovative concepts to the participants of FundsEvent.
First, Laurent Denayer introduced his company ume, "know your fund distributors, kyd and due diligence". "What are the problem we are trying to solve?" he asked. According to the CEO, there is an inefficient answer to respond to fund distribute due diligence requirement: fatigue from distributors, non-added value activities, iceberg view, and the difficulty of find new distributors, which can take from 6 to 9 months. "Therefore, our solution consists in a mutualized web-based platform designed to support management companies in the oversight of their network of distributors, resulting in time and cost saving, and also revenue generation" explained Laurent Denayer.
Then, David Furcajg (President & Co-founder), presented his own concept. HighWave Capital uses a Robo-Advisor that uses behavioral finance principles to enhance performance of both the end-investor’s risk assessment and asset allocation. "We created a full modular offer, from MiFIDII compliant on-boarding, to functions – aggregation and simulation – and output – allocation and reallocation" added David Furcajg. Performance is HighWave Capital's goal and a 100% behavioral robo-advisor, form end-user profiling to asset allocation, is used: "We offer a scientific assessment of risk aversion and our disruptive asset allocation approach avoids drawdowns". Customer experience is also an important part of the solution: a conversational agent is used to ease the end-user experience all along the application.
Leveraging technology to improve clients’ services in the funds industry
The event ended with a round table on the use of technology, moderated by Alexander Hoffmann (Director, AllianceBernstein), with the participation of Alexandre Pirlet (Head of Fund Administration and Distribution Solutions, BNP Paribas Securities Services) and Olivier Taille (Blockchain Officer, Market Intelligence & Regulatory Watch, Project Manager Natixis Asset Management). "Technology is everywhere. But how can it improve clients' services in the funds industry" asked the moderator, before focusing on the use of Blockchain and its benefits. According to Olivier Taille, 2018 will be the year where new blockchain-enabled plateforms will go live. "I'm not talking about PoCs anymore but rather about commercial services which will be live by the end of the year. Blockchain has two main promises: operational efficiency and client transparency. This combination will change many things in the way we handle the business of distribution" he added. Alexandre Pirlet can only agree: "Over the last years, the industry got used to the technology and increased its knowledge. Now, transparency is our main objectives through the use of the blockchain technology". The experts then compared the situation in the US – a more mature market – and in Luxembourg. "There is more pressure in our country because we HAVE TO move. On the other hand, it's a great opportunity for Luxembourg. We need to look at the American model, consider the way they approached it in order to avoid errors" explained Mr. Pirlet. According to Mr. Taille, the perspective of being able to use blockchain-enabled platforms all over Europe with all the actors means a great promise for efficiency. It will make the whole value chain simpler.
The event ended with the traditional networking cocktail, allowing experts to further discuss the rise of compliance and the use of technology in the funds industry.
Photos: Dominique Gaul
Publié le 08 février 2018