These trends will define your investment journey in the 2020s
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 enter the new decade, we turn to trends that are already visible to understand where our ultimate direction and focus should lie.
The key trends that will shape and define the local and global asset management industry in the 2020s are:
* 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, particularly private market assets, will also become more important to investors seeking to outperform the market. Fee margin pressures are likely to persist in an increasingly competitive environment.
Although Sanlam Investments provides investors with access to index-tracking, alternative and multi-managed solutions, our active management complement continues to exhibit a layer of unique value-add relative to our peers. Our focus on portfolio construction and risk will remain a distinct feature.
* Technology and data will be table stakes in most markets. Getting financial technology and data harnessing right will require a new strategic agenda and 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 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 a 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 pace. Domestically, the pace of transformation is expected to accelerate. Current industry market share of black-owned asset managers is estimated at 7% (R579 billion). This marks an increase of 18% year on year and six-fold over 10 years (according to the 27Four BEE.conomics 2019 Survey).
Sanlam continues to make 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 recent Financial Sector Conduct Authority 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 what we are observing.
As I reflect on last year, I am struck by the way in which it 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.
Jason Liddle is the head of institutional at Sanlam Investments.