Insights

Investment & Middle Office

INVESTMENT & MIDDLE OFFICE MARKET COMMENTARY, Q4 2019

• Article by BRUIN Financial

INVESTMENT & MIDDLE OFFICE MARKET COMMENTARY, Q4 2019

MARKET OVERVIEW

As we welcome 2020, let’s look back and assess how the investment market faired in Q4 and what trends we witnessed across 2019.

With fee pressure becoming ever more prominent in 2019, assets managed by index funds have smashed through the $10trn mark reported at $11.4trn in November 2019.  Index funds were initially slow to take off after first being introduced in the 1970’s however in the recent decade there has been a surge towards passive investing with Equity tracked funds gaining the most attraction. Europe hit $1trn in ETF Funds after a record inflow of $125.2bn into European-listed ETF’s in 2019, more than double 2018’s figures. With consistent inflows over the last few years, it is yet to be seen whether the passive market will continue to see this level of growth or whether active managers will see a renaissance in 2020.

ESG continued to be a topic of conversation throughout 2019 however with the exponential growth of passive mandates, there is a debate as to whether there is due consideration to ESG investing, with some investors believing you can only manage ESG through active mandates. With that being said, 2019 saw record revenue of $20.9bn invested into sustainable funds, almost 4 times the levels of 2018, with companies such as Blackrock leading the way on ESG ETFs as a way of tackling the passive vs active debate.

Many managers and investors are also calling for common ESG standards to be put in place to avoid ‘greenwashing’ and for clearer definitions for ESG terminology. With some investors saying the 2020’s will be the decade of ESG, it is not surprising that there has been much scrutiny put on the topic over 2019, however managers still have very different viewpoints ranging from screening to setting up ethical funds. This is one area where active managers can make the most impact if they are to gain more capital in the coming years.

As we approached the end of 2019, asset managers took the opportunity to evaluate performance and hiring plans across the year. Conversations have steered towards “team builds” in front office functions, most of which will be product specific. Other conversations have entertained talks of hybrid portfolio and quant roles, giving candidate’s exposure to programming tools and trackers and whilst operating in an active investment approach.

2019 was also the year of the dreaded ‘B’ word- Brexit. In Q4 2019, we witnessed firms continue to strengthen their European presence and add further front office capability across the research and portfolio management functions. However in positive news, following the election outcome the UK is seen as being ‘investible’ again with a boost in the UK stock market especially the FTSE 250 which was up 13.3% compared to March 2019 when Brexit negotiations were relatively stagnant. There has been an outflow of 12% AUM away from European equity strategies since January 2018 in favour of other global markets and we may see a reversal of this in 2020 as we saw the political uncertainty around Brexit laid to rest in December 2019.

ROLE PROFILES

Portfolio Managers

Given time of year, recruitment across portfolio management was fairly quiet as most portfolio managers were patiently awaiting year end results and bonus. 2019 saw both equity and fixed income markets generate remarkably strong returns for investors predominantly across active managed portfolios vs passive. Recruitment for experienced active Credit Portfolio Managers remains a requirement for the majority of the larger fixed income houses and we expect this trend to continue in 2020. However, given the continuous active vs passive debate, there are talks amongst many asset managers of team builds to specialise in Index tracking portfolio management.

 

Fund Managers Assistant

The support function for Portfolio Managers saw a healthy level of volume in Q4 with several Fund Manager Assistant roles at mid to large sized organisations. Naturally these roles were product specific, requesting candidates with either multi-asset, Equities, Fixed income or LDI experience. From a candidate perspective, these roles receive a healthy amount of appetite given that it brings candidates closer to the portfolio and closer to funds.

 

Equity research

Q4 saw buoyant activity across Equity Research recruitment. The searches we managed varied from specialist analysts with experience in emerging markets, LATAM, to UK specific equity stocks. Metals & mining and fundamentals continue to be popular choices of investment stock, this trend is reflected in our recruitment efforts. The challenge to promote diversity in equity research teams on the buy-side continues. Asset Managers are now considering female equity analysts on the sell-side to make the move over.

 

Product Managers

Asset Managers of all sizes are bulking up their Product teams, with the emphasis on Managers and Developers. The product suite has ranged from fixed income specialists to equities, with some firms seeking strong experience in real estate. The “full 360” approach continues to be the reoccurring brief, although we found in Q4 that many product functions within larger asset managers remain as specialist areas, whereas the small firms are grouping the roles to create generalists rather than experts.

 

Institutional Client Services

Client services recruitment was our highest volume area across 2019 for asset managers, private equity houses and wealth managers. The search dominated the senior end, with firms looking to bring in new talent at the Manager, Director and Head of level. Geographically the coverage was predominantly UK or EMEA, showing growing signs of institutional client coverage across these regions.

 

MOVERS & SHAKERS

Jupiter Asset Management hired two equity analysts to strengthen their research and equity teams. Nahid Iqbal joins from Medibanca and Antoine Hucher joins from French firm Exane. The two will focus on technology and alternative companies.

Alex Neilson, previously an Investment Manager at Investec Wealth & Investments has joined Cazenove Capital as a Portfolio Manager in their Chester Office.

In the wake of Steven Backes’ early retirement, Capital Group has announced that Kirstie Spence (portfolio manager) will take over management of the fixed income securities. Kirstie sits on Capital Group’s wider fixed income management committee and has 23 years of investment experience.

Goldman Sachs Asset Management has hired Tim Verheyden as an Executive Director. He was formerly at Arabesque Asset Management, where he supervised ESG Research. Tim will focus on the inclusion of ESG within Goldman’s Equity strategies.

Julien Tisserand has left JP Morgan Asset Management where he spent 3 years as Global Fixed Income Portfolio Manager.

Agnès Belaisch has joined Barings in the newly created role of chief European strategist. Belaisch will be responsible for providing macroeconomic and geopolitical guidance and context to the firm’s investment teams.

 

PREDICTIONS

After an incredibly strong year for US equities, 2020 sees the return of a Presidential Election and with that, a decline in asset growth is very much expected. Blackrock, amongst other firms, are cautious in their predictions for US equity growth in 2020, with many predicting UK equities to outperform them in the start of the decade. Across the board, there is positivity toward Emerging Markets and Japanese equities as investors seek to shift away from UK and US markets, avoiding their political issues and uncertainties for 2020.

 

Moving forward, May 2020 should see regulation change in China whereby international fund managers will be able to have access to the expansive retail market, without the help of a local partner. Investment houses abroad from then onwards will be able to own an onshore company outright in China for the first time. It is expected that China’s fund market will surpass the size of the UK’s one by 2021, becoming the second largest in the world.

As a result of Woodford Investment Management’s collapse last year, regulation change is likely to be at the forefront of 2020. Bosses are already calling for rule changes into the industry’s liquidity issues, whereby investors are able to redeem their cash through selling assets at a fair price very easily, so-called ‘open-ended funds’. Alongside this, revenue pressure could heighten this year as passive funds hit an all-time high in Q4, with this rise expected to continue. This has caused fees to reduce significantly as firms look to compete, with negative fees not out of the question for 2020.

To conclude our predictions for 2020, we expect continuous growth in support Front office functions as fund management resumes its expansion. As passive fund growth hits new heights in 2019, could this be the year we see a rise in Index Portfolio Managers, or will active investing see resurgence?

 

***

For more information about the market or current opportunities please contact one of our Consultants.