Dublin roundtable

Dublin roundtable


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PARTICIPANTS:

  • Tara Doyle, partner, head of asset management, Matheson
  • Padraig Kenny, managing director Ireland, RBC Investor and Treasury Services
  • Fergus McCarthy, head of UK and Ireland intermediary distribution, BNY Mellon Investment Management
  • Des Fullam, director, Carne Global Financial Services
  • Pat Lardner, CEO, Irish Funds
  • Furio Pietribiasi, managing director, Mediolanum Asset Management

                     

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Pat Lardner: Let’s start by talking about recent changes from a client perspective – what are you hearing from investors and how are their preferences changing?

Furio Pietribiasi: In the retail space we should start by distinguishing between the Irish/UK market and continental Europe because there are different distributing models. On the continent it happens mainly through the banks, whereas in Ireland/UK you have a lot of distribution coming through independent financial advisors and brokers.

That said, in general there has been a shift away from government bonds by the traditional buy-and-hold investors towards investment products. If you look at last year, the biggest growth market – southern Europe, particularly in Italy and Spain – had such a low yield environment that bonds were no longer a viable opportunity. 

The days of 6-7% returns with low risk, because they were guaranteed by the state, are over and investors have to engage with professional money managers to seek better returns.

We have seen a huge number of existing and new asset managers increasing cross-border distribution into the European market, pushing their own products and bringing competition to a new and unprecedented level, which is very good for final clients if properly advised.

Lardner: One impact of low interest rates and a search for yield and different returns streams is that there are more multi-asset solutions. How does that manifest itself in the types of solutions that you are being asked to bring to market?

Fergus McCarthy: One of the things that we have seen from a UK perspective post-RDR is that unless you have some form of captive distribution, or vertical integration more correctly, fund-of-funds are too expensive for consumers.

Investors are much more aware of the total cost of ownership of a fund, which has led to a move from fund-of-funds towards multi-asset products. 

There is correlation in the pension world as well, where we have seen a significant rise in the number of schemes moving from defined benefit (DB) to defined contribution (DC).

Pietribiasi: While in the UK the main driver behind investors’ decisions currently appear to be cost, in continental Europe it has been risk appetite supporting the growth of multiassets strategies, due more to the fact that people are scared about volatility.

Investors are looking for outcomeoriented solutions and there is a greater focus on dividends – the growth of products paying dividends is massive. All the best-selling funds have been driven by the concept of dividends because investors with significant savings need their money to generate an income on a regular basis.

Lardner: What have you seen in terms of product launches?

Tara Doyle: It has been a particularly busy year for new product launches, which is very encouraging and not really typical of how the world has been working for the past few years. On the UCITS side we are seeing more of a move towards passive. 

People are looking for ETFs and those managers that don’t have ETFs in their portfolio realise that they either need to create a fund or trade in them.

We are seeing a lot more credit products – exactly what Fergus and Furio have talked about – in terms of people looking for dividend products and multi-asset class products. 

There has been a very wide range of new product launches across the whole spectrum, from plain vanilla ETFs to the more interesting and esoteric credit funds. This has also been fuelled by AIFMD, which enables passporting of private equity or real estate funds.

Padraig Kenny: One point to note is what drives the pressures on managers– it is clear that regulation has increased scrutiny and transparency on fees. 

I agree with Furio that it is more than just the actions of regulators that have increased this scrutiny – clients are also asking if there is value, whether the fees are reasonable and whether those fees are absorbing too much of the return. That has had to be taken account of in the cost of both individual funds and blended strategies for funds.

Where previously funds have pursued a single strategy or asset class, there is now a trend for those funds to become part of a wider strategy – whether it be an absolute return, market neutral or regional approach.

McCarthy: The barrier that we have in the UK to ETFs is that the platforms, where nearly 85% of net flow goes to, can’t all currently cope with ETFs, so in that environment it is very difficult for advisory firms or distributors to use ETFs in their products.

Lardner: Presumably the need for different products and solutions means different types of managers are coming to market as well.

Des Fullam: We are seeing high levels of innovation in ETFs, with low cost indextracking products and a lot of smart beta products. Many of the products being set up are within an ETF wrapper and at a cost significantly below those of active funds.

Pietribiasi: Something that we didn’t anticipate in this macro scenario is liquid alternatives – that is another big area. 

There are more liquid alternatives coming into the market because it is where people are trying to generate alpha for their investors with limited volatility providing daily liquidity and better transparency on the underlying investments. 

In the United States the peak in liquid alternatives was reached 18 months, maybe two years ago. In Europe we have had huge growth in the last six to nine months and if you look at the news flows in our industry it seems as if there is another manager offering a new liquid alternative product every day.

Fullam: Perhaps we could briefly go back to the point about servicing the flow of products. Over the last few years in Ireland we have seen growth in asset classes where maybe we didn’t have such a strong reputation in the past. 

One of the beneficial outcomes of the financial crisis we had here was that there were a lot of fund managers coming in and buying up distressed Irish assets, Irish property, Irish loan books and putting those into Irish fund structures. 

There is now real expertise, in terms of servicing property funds and distressed assets, and Ireland has made a really good name for itself.

Lardner: Let’s move on to regulation. Ireland was early to provide regulated solutions for hedge funds, which meant the community here had to have the capability to deal with them from a set up and servicing point of view. 

We now see those strategies being delivered through a UCITS wrapper – does that tally with Ireland’s strength in UCITS to create a ‘sweet spot’? How have you seen the liquid alternatives piece play out here in the last 12 or 18 months?

Kenny: UCITS has a long and deep history within the Irish funds industry, but new areas such as liquid alternatives will take time to get established. We shouldn’t lose sight of the fact that traditional UCITS is the centrepiece of a lot of the business we do in Ireland. 

It allows us to address real estate, private equity and liquid alternatives from a well-established base in terms of administration and from a regulatory, legal, tax and accounting standpoint. We have built the capability and that can now be applied in new areas.

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