| Investors focus on liability side of funds |
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| With many pension funds suffering large deficits, today clients are much more focused on the liability side of their funds, says Noel O’Halloran, director and chief investment officer at KBC Asset Management Ltd, leading to clients looking to achieve more stable, consistent, returns, with an emphasis on reducing the downside risk. |
Q. What is the biggest challenge in your industry at the moment?
After the strong bull market of the late 1990s and subsequent bear market of the early part of this decade, one major challenge for all involved in the industry is to learn to adjust to what is ‘normal’. The last decade is not normal in any historical context and I would say that in the decade ahead we should expect lower and more consistent nominal returns, more akin to longer term averages.
Another major challenge is the increasing complexity of clients’ needs. This requires more specialisation and less generalisation. This applies to both the type of investment instruments used by fund managers and the type of product that clients now require for their specific needs.
For Irish based fund managers such as ourselves, there is a continuous competitive challenge posed by the global nature of the asset management and investment consultant industry. This has required an ability to change and to be more creative in rapidly responding to client needs.
Q. What is the biggest opportunity?
The biggest opportunity is that the industry, whilst rapidly changing, is growing and offering opportunities to those managers that are willing to listen, to be creative and to be ready to change. KBC Asset Management is at the forefront of this, having the advantage of being part of a large European bank and asset management company which maximises our ability to offer a portfolio approach of products to meet our client specific needs, e.g. active management, passive management, hedge funds and specialist products such as having specialist asset management teams in Central Europe to leverage from.
The other advantage is that a specialist world allows more scope for smaller (more ‘boutique style’) firms to perform in a focused way.
Q. What key trends are you seeing in terms of product development?
In the past the objective of clients was more to maximise returns and not to pay too much attention to risk. After the market downturn, clients’ focus and attention has changed dramatically. Just as fund managers experience economic, interest rate and stockmarket cycles, investors and their clients also go through cycles of ‘fear and greed’. Today, with large deficits in many cases, and new accounting standards, clients are much more focused on the liability side of their funds. Hence, a major trend is for clients today to look to achieve more stable, consistent, returns, with an emphasis on reducing the downside risk.
Q. What impact is the growth of hedge funds having on your business?
From a stockmarket point of view, the common view is that they are increasing the volatility of markets as they are commonly perceived to have shorter investment time horizon than the average traditional manager.
From a client point of view hedge funds are an opportunity as certain hedge funds are a component of the portfolio of products that a client today requires.
Q. How is the regulatory environment, at a local/EU/international level impacting your business?
The regulatory environment is a major consideration and component of any modern asset management business. As with all other aspects of our business, there are rapid changes occurring at the regulatory front. From a client point of view, this does serve to give them more comfort and transparency in relation to their fund manager’s business model and more importantly the safety and custody of their assets. The increased regulation does also increase the costs for fund managers of running our businesses. |
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