Predicted fund trends

Looking to the near future, we surveyed over a hundred managers, investors and service providers to reveal the state of the market and where it is headed. The respondents comprised:

Developing trends: Strategy

Survey respondents were asked to select three emerging trends in funds’ strategy they anticipate over the next year. The table below shows the top five results.

ESG will inevitably be a greater focus for managers and investors alike going forward as this moves from an alternative strategy to the mainstream.

Developing trends: Investment Sector

Survey respondents were asked to select three trends they anticipate in the investment sector over the next year (concerning the matters set out below). The table shows the top five trends.

Portfolio balance is unlikely to remain static. Respondents were of the view that there will be changes in investment strategy as managers focus on better performing classes.

Biggest challenges

We asked survey respondents to select the biggest challenge(s) that they consider the funds industry is facing over the next year. The table shows the top five challenges

The economic outlook and difficulties in sourcing assets are thought to have the biggest impact on raising funds.

Raising Funds

We asked survey respondents to select the factor(s) that they think will have the greatest impact on fund managers’ ability to raise capital over the next year. The table shows the top five factors.

Although Covid has given rise to uncertainties, many managers plan to take advantage of opportunistic strategies. Eric Byrne, Head of Multi-Managers, REPM, UBS Asset Management, believes that the negative impacts will be slight in comparison to what happened after the 2008 global financial crisis: “The lessons have been learned from the financial crisis. LPs are more diversified, they’re more careful on their use of leverage, and therefore, there are far fewer distressed sales now in private equity, real estate and infrastructure, than during the financial crisis.”

Preserving asset value

We asked survey respondents about the best way to preserve asset value in 2021. The table shows the top five responses

Sustainability and ESG

Our survey respondents point to a continued focus on ESG, particularly as investors see this as a primary factor in choosing between funds.

It is now impossible to consider the future of funds and fund terms without considering sustainable investment. Over the course of the last two years, sustainable investment has moved from being a relatively niche area of the investment universe to the mainstream – all types of fund and asset class now need to consider ESG: either as a result of regulatory need or market impetus.

Level 1 of the Sustainable Finance Disclosure Regulation came into force on 10 March and has crystallised these changes in EU fund processes and documents, but this is only the beginning of the story. Over the course of the next year (and beyond) the shift towards sustainable investment as an imperative for managers will continue to pick up speed. From the EU, we will have Level 2 of SFDR, which brings with it a significant and onerous reporting burden for managers, as well as the EU Taxonomy.

In the UK, there are numerous sustainable investment related initiatives from the FCA and the PRA, covering the UK’s own proposed climate related disclosure regime, guiding principles for the design of ESG products, stress testing and a separate taxonomy: all of these will see material change for the industry over the course of the next year. The main disclosure regime is expected to apply to large asset managers in 2022 and to smaller asset managers in 2023. On top of this, both the EU and the UK are pursuing additional requirements for corporates; as such, fund managers will be affected at every level.

Artificial intelligence (AI) and Technology

Fund managers and investors are increasingly looking at the potential impact and benefits of AI and Technology and Fintech in the funds sector. Whilst not yet in this study’s top developing trends, our discussions with managers and others reveal a growing opportunity to innovate, differentiate and to create new products. Tokenisation of assets is a way to increase how and what investors can invest in and to increase the investor base. We are seeing this trend begin to pick up across our CMS offices with security token offerings for a wide range of assets from Europe to SE Asia. There is a global opportunity to attract a new generation of investors both in existing and fast growing new regions. Investors will also increasingly look to technology to determine how they invest and monitor their portfolios.

Digitalisation of operations and use of computing is also an accelerating trend. This includes the use of distributed ledger technology (DLT) such as Blockchain. It may be used, as we are now seeing in some cases, for fund raising and onboarding. DLT can also be used to gather data, for reporting and for trading tokens on a platform. It is likely to support compliance for accounting and ESG and generally create value for investors in terms of the governance of a fund and data about its investments. Technology will also be an opportunity to drive down costs or increase performance through cost savings or investment and asset management benefits.

This is a period of exciting change. Digital currencies and tokens for payments are becoming a theme alongside legal and regulatory changes and sand boxes to facilitate growth. Change is also likely to bring disruption and change the shape of the funds sector. We expect our next study to confirm this.

Find out more about the impact of AI & Technology on the Funds sector here.

Previous 17 / 19 Next