Tackling the real investment issues
Daily newsfeeds distract us from slower-burn but no less important challenges facing investors. Asset managers and advisers have a vital role to play in identifying and responding to the issues that really matter.
US-China trade tensions are among the issues casting a shadow over the global economy. Each day brings a new twist, or tweet, and the issue is understandably at the top of news agendas. But will it be in 10 years’ time?
I suspect not. The daily news agenda can act as a guide to the future. But trying to work out what really matters requires us to lift our heads up from the granular and take a step back.
This is just as true in our own industry. As investors, it is easy to get bogged down in every new piece of data, and lose sight of the context in which we are operating. The reality is that our industry is changing and we need to adapt.
During two recent conferences, I sat on panels that discussed some of these changes. The first was at the MSCI Annual Investing Conference and covered sustainability beyond Environmental, Social and Governance (ESG) considerations. The audience comprised investment managers and asset owners. Over one-third of them said they expected the total assets operating along ESG principles to more than double in the next five years.
It’s a familiar story. I’m certain that, among major investors and the man and woman on the street, appetite for ESG investments will only increase over time.
At the same time, there will be more demand for impact investing. Investors will be interested in funds that invest only in companies with products, services and business models that contribute to positive outcomes for society and the environment. Simultaneously, investors will seek potential for strong financial returns.
An interesting highlight of the discussion was the need to improve measurement. ESG factors such as a company’s carbon footprint, gender pay gap and health & safety track record are fairly easy to measure. By contrast, impact measurement and reporting in terms of the positive outcomes businesses have on the environment and society is still in its infancy. More work is required.
ESG was also a prominent topic at the second panel discussion I joined. This took place at the City Week conference and was titled ‘New Priority Markets for Financial Services’. But perhaps the key take-away was on demographics. For instance, populations across Europe and Japan are aging. Conversely, in some emerging markets, populations are comparatively youthful.
In her recently published book, 10 Lessons For An Ageing World, Camilla Cavendish highlights that next year, for the first time ever, there will be more people over 65 than under five.
“Changes in demographics and similar areas seem harder to deal with because they happen slowly. They require action now for little immediate benefit”.
One observation I keep returning to is that changes in demographics and other similar areas seem harder to deal with because they happen slowly. They require action now that will deliver little immediate benefit, even though it may have substantial positive impact in the future.
In that respect, it’s not dissimilar to saving for a pension. It’s hard to encourage young people to save now for a pension. One reason is that they feel daunted by the challenge of saving while also having to repay student debts, save for a house deposit, meet household bills, and so on. Yet, we know that compound interest means the earlier one starts to save, the better. This is particularly important today, when there is growing pressure on individuals to take more responsibility for their financial futures.
There are also challenges at the other end of the age spectrum. It used to be the case that pension pots had to support 10 to 15 years of retired life. Now that many people are living into their nineties, we may need to work longer and also fund our own social care.
The short-term nature of political cycles does not lend itself to tackling long-term issues such as encouraging savings and investing. Equally, constantly updated social networks and 24-hour rolling news commentaries can make us believe that only immediate issues are worth tackling.
After my panel appearance at the City UK conference last week, I recorded a short video summarising what was discussed. At the end, I was asked what topics I would like to see covered next year. I had to quip back that I hoped it was anything but Brexit. Unfortunately, I think that’s wishful thinking. Clearly, Brexit is an issue we must grapple with.
But we can’t let newsfeeds distract us from slower-burn but no less important matters. For instance, how are investor appetites and demographics changing, and how must we respond. Asset managers and advisers have a huge and important role to play.
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