How will COVID-19 reshape fund management? Refinitiv explores the measures and business practices that are changing how the fund industry will operate over the next year and beyond.
- Fund managers are adopting new ways of operating, including remote working and digital-first customer outreach.
- Use of data and technology within firms will further intensify, as fund managers aspire to work with more agility, intelligence and speed.
- Risk-off assets will likely continue to heavily feature within actively managed funds until the crisis abates.
Universally, investment managers agree that the best-performing funds are those that follow a rigorous strategy — whether actively managed to take advantage of tactical trading opportunities as and when they arise, or passively managed to capitalize on rising asset prices over the longer term.
The active versus passive debate is a recurring theme that is frequently discussed between Refinitiv Lipper Fund Awards winners each year, with ardent supporters on both sides backed by proven track records.
While the COVID-19 pandemic won’t change how the industry strategizes its funds, says Detlef Glow, Head of Lipper EMEA Research at Refinitiv, the virus will nonetheless force new ways of working into the fund industry, as well as drive preference for shorter-term, tactical investment decisions that favor risk-off assets among active managers.
Here are four ways COVID-19 will reshape fund management during 2020 and beyond.
Faster and smarter decision-making
Once the disease has substantially retracted, fund managers will analyze market data from the past few months to unearth potential lessons that can be learned from the crisis, explains Glow. With this information, they will work to develop an indicator that will help them to act faster and smarter, particularly for actively managed funds, so when such an event happens again, they will be able to move with agility and better protect their portfolios from market shocks.
It is widely acknowledged that every fund manager needs data to make informed decisions. High quality data is particularly important in supporting these. “In times of market turmoil, portfolio managers must react quickly to a changing market environment,” Glow says. “They need technology that can provide them with timely and accurate data, to enable fast analysis and decision-making across all parts of the portfolio management process.”
Traditionally, managers have promoted their funds in person. Road shows that highlight the uniqueness and competitiveness of a manager’s fund have for some time been the preferred means of sharing these. However, travel and in-person meeting restrictions imposed due to the COVID-19 pandemic have halted this approach. While this is severely hampering the outreach efforts of some managers, it is an opportunity for others. “The face of the investment industry will change after the crisis, as social distancing forces fund managers to adapt their communication and sales processes to more digitalized solutions,” asserts Glow.
Typically, fund selectors only need in-depth information once a fund is shortlisted on their buy lists, having ascertained predefined investment preferences such as horizon, assets class, markets and more. Fund managers can host detailed information about their funds online, making it accessible 24/7 to potential investors. In the event that a request for proposal is issued, information about the fund and its manager can then be compiled and accordingly emailed or uploaded to the issuer.
Preference for tactical risk-off investments
The ongoing crisis will see the preferences of active managers sway towards less risky assets over the forthcoming months, predicts Glow. As equity markets decline, so too will assets under management. Glow observes that equity funds are unlikely to be the only asset class to experience outflows, however, as the crisis prompts managers to favor risk-off investments.
“It would be normal to see outflows from all kind of risky assets including alternative UCITS funds, absolute return funds, mixed-asset funds, and corporate, high-yield and emerging market bond funds,” he explains.
Remote working to continue
The ability of managers to swiftly deploy remote working has been positive for the fund industry. When prompted, many switched to this form of working seamlessly, with little impact on workflow or productivity. The success of this switch questions whether fund managers need the office locations and spaces that they currently lease — many of which are in prime locations. That said, many business-critical functions must be conducted at an official office, including portfolio management. In all major jurisdictions, fund managers must by law use office equipment to execute their daily tasks.
However, when a black swan event like COVID-19 next strikes, Glow says, regulators will likely make exceptions or amendments to these rules to ensure the industry can thrive remotely across all business functions. Indeed, it is likely that the adoption of remote working, digital-first outreach and faster and more informed decision-making will change the investment industry for the better — as shorter-term tactical trades and long-term passive investing continue to deliver returns for investors.
For further information on the Refinitiv Lipper Fund Awards visit lipperfundawards.com.