By Jason Liddle, head of Institutional at Sanlam Investments

An investor’s journey has always been one of facing the unknown in the quest for sufficient reward in return for taking on risk – primarily defined as uncertainty. And increasingly, clarity about the future is becoming rare. As we prepare to enter the next decade we turn to trends that are already visible to understand where our ultimate direction and focus should lie. In our last message of the decade we offer you a sneak preview of the 20’s by looking at the key trends that will shape and define the local and global asset management industry.

Alternatives and index trackers will take their place in portfolio construction

Active management will have to continue to present its case against index tracking solutions. Alternatives, especially private market assets, will also become more important to investors seeking outperformance of the market. Fee margin pressures are likely to persist in an increasingly competitive environment. While Sanlam Investments already provides investors with access to index tracking, alternative and multi-managed solutions our active management complement continues to exhibit a skilful layer of unique value-add relative to our peers. Our focus on portfolio construction and risk will remain a distinct feature and bedrock.

Technology and data will be table stakes in most markets
Getting financial technology and data harnessing right will require a new strategic agenda and usually significant investment. Research groups expect most firms to step up their digitisation activities, leading to reimagined business models, new technology capabilities, greatly increased efficiency, and transformed client relationships. We will continue to invest meaningfully in the areas of technology and data specifically aimed at our ultimate goal of transformed client relationships.

China will overtake continental Europe in asset management

According to State Street Global Advisors, China will become the second-largest region for asset management, ahead of continental Europe, attracting more flows than the US over the next decade. It is expected to house the biggest global asset manager in time to come. Emerging markets will become more important to the global investor and we will continue to focus on the next frontier market, Africa, to provide our clients with new opportunities for growth.

Brand and client experience drive client loyalty
The winner-takes-all phenomenon will accelerate as brand recognition, distribution dominance, a differentiated client experience and scale become ever more critical. Our focus on improving client experience started in earnest this year and we are eager to build on it heading into the next decade.

Sustainable investing is on the rise

Sustainable investing will rise as firms weave environmental, social, and governance (ESG) factors into their investment decisions, aiming to create positive impact without undermining returns. We have been a respected voice (active ownership) on behalf of our clients for many years, targeting better outcomes, and will continue to invest in new tools and the right talent to harness our understanding of ESG data and drive our internal research.

Transformation is expected to pick up the pace

In South Africa, the pace of transformation is expected to accelerate. Current industry market share of black owned asset managers is estimated at 7% (R579bn); this marks an increase of 18% y-o-y and six fold over 10 years (Source: 27 Four; BEE.conomics 2019 Survey). Sanlam continues to make consistent progress in the sphere of transformation and embraces its role as a responsible corporate citizen making a positive contribution in various areas, including significant corporate social investment programmes.

At a recently held FSCA Conference many of the above mentioned trends – the drive toward transformation of the industry, the increased use of alternatives, ongoing fee pressures and sustainable investing were highlighted – echoing the trends we are observing.

As I reflect back on 2019, I am struck by the way in which it has challenged mainstream and my own understanding. Thinking about how the world works or will work, even though there are clearly observable trends, we need to continue to embrace the unorthodox and become comfortable with some measure of ambiguity and uncertainty.

Source: www.sanlamintelligence.co.za