4 Oct 2019 | Press Releases
ESG #1 issue for global fund managers; Luxembourg leads in sustainable assets AuM; US and Asia funds follow Europe'sESG lead; technology to enhance asset management industry
Luxembourg, 4 October 2019
ALFI GLOBAL DISTRIBUTION CONFERENCE 2019:
ESG #1 ISSUE FOR GLOBAL FUND MANAGERS; LUXEMBOURG LEADS IN SUSTAINABLE ASSETS AUM; US AND ASIA FUNDS FOLLOW EUROPE’S ESG LEAD; TECHNOLOGY TO ENHANCE ASSET MANAGEMENT INDUSTRY
Sustainable finance took centre stage at the 2019 ALFI Global Distribution Conference in Luxembourg 24-25 September. Corinne Lamesch, ALFI’s Chairperson, called for the industry to work collectively on sustainability to achieve radical change and play a central role in the financial wellbeing of society. The Luxembourg Minister of Finance reiterated his call for the Capital Markets Union to become greener and more sustainable. Pressing climate change concerns has put sustainability issues to the forefront for investment managers, who face growing pressure from investors and regulators globally to offer products that meet ESG criteria. There was a consensus among the speakers that ESG is now integrated into investment processes. According to NICSA, sustainability has become the number one issue for US companies, investors and asset managers.
Corinne Lamesch, Chairperson of the Association of the Luxembourg Funds Industry (ALFI), opened the 28th annual conference by highlighting that despite Luxembourg having reached a record €4.5trn in assets under management, there is no room for complacency. Increasing populism, geopolitical tensions, Brexit, signs of recession, pressure on margins, climate change, demographic change and technological upheavals are some of the major challenges facing the industry. Asset management must take on an increasingly important social function in the economy and everyone must work together.
Corinne Lamesch commented: “Luxembourg has been promoting sustainable investing for many years and now accounts for over 31% of all sustainable funds and 39% of sustainable fund assets within the EU. Now more than ever, investors want to entrust their savings to companies that make good decisions for the environment. This creates major opportunities for asset managers to help investors channel their savings into companies that allocate capital sustainably.”
The Minister of Finance welcomed the fund industry’s role in helping to direct private investment to projects that seek to tackle climate change and supporting the public-private Luxembourg Sustainable Finance Initiative. He advocated that the Capital Markets Union must become greener and more sustainable and thus change its name to reflect this common ambition.
Pierre Gramegna, Luxembourg Minister of Finance, stated: “The fund industry needs to anticipate EU regulatory developments such as the PEPP or the EU taxonomy on sustainable finance and transform them into new products and new business opportunities, which could eventually become a success on the scale of the UCITS regime for cross-border retail funds. Sustainable finance is not good for you because it’s good for your conscience; it’s good business sense. Furthermore, the rise of fintech in Luxembourg will be an important driver to deliver sustainable finance goals.”
Sally Wong, CEO of HKIFA and Jim Fitzpatrick, CEO of NICSA reported that Asia and the US are closing the gap with Europe when it comes to sustainable finance as asset flows into the sector are growing and ESG principles are being incorporated into the investment process. New products and strategies are being developed as ESG has become a dominant theme with Hong Kong and the US looking to benefit from Europe’s experience and knowledge.
Jim Fitzpatrick, CEO of NICSA stated: "Environmental issues have so far had only a marginal value in capital investment. However, that has changed in the past twelve months: ESG has become the number one trend for US companies, investors and asset managers.”
Sabine Otto, Policy Officer, European Commission noted that the Sustainable Finance Action plan adopted in 2018 has led to strong capital flows into the sector, increased transparency and a focus on the long term. The EU taxonomy needs some more time and debate, but an agreement is expected by the end of the year. With the latest regulation, responsibility for integrating sustainability risks now sits at a senior board level. One of the ambitions for the incoming President of the European Commission, Ursula von der Leyen, is to transform the European Investment Bank into a European climate bank and transition to a climate neutral economy. It is estimated that more than €1trn will be unlocked into climate-related investment in the next decade but private investment is required to take it further and everyone needs to engage. Later this month an international platform on sustainable finance to coordinate joint projects is to be announced by the European Commission.
Investment for retirement
Europe is facing a challenge regarding retirement savings with the ageing population increasing the pressure on pensions systems and people simply not saving enough. 2050 will see just two people or less of working age for one retired person compared to four a few years ago. As a result, the population will need to rely on occupational and personal pensions to complement state pensions. The initiative of the European Commission to create the pan-European cross-border PEPP, personal pension plan, is an excellent tool to fill this gap.
Alternative and private assets have risen exponentially
With small and mid-size companies, start-ups, infrastructure and sustainable projects all requiring funding, alternative investment and private asset funds are uniquely positioned to provide this. Alternative investment funds have grown by 26% over the last three years.
Alternative investment funds have clear tailwinds – they are more sophisticated, flexible and tend to offer higher returns on investments in a time of ultra-low or negative interest rates. Luxembourg has become the European hub for private equity funds, which grew by 20% in 2018.
Data and digitalisation
Most now accept that digitalisation is set to disrupt the entire value chain of the industry from the front and middle to back office. Lamesch advised that the asset management industry should disrupt itself in a positive manner to become more efficient, improve the customer journey and connect with younger savers.
The best technology and data will ultimately be the key drivers for business and are having a fundamental impact in all areas of distribution and the broader supply chain. The ability to bring together client data allows firms to identify trends, powers them to build more targeted products and provides greater information and services to deliver a more precise client outcome.
The data revolution and availability of underlying data has dramatically developed a high level of service and technology. UBS noted that there’s a clear correlation between data accuracy and fund inflows. The fund industry holds valuable data but it doesn’t leverage it as much as for instance Google and Facebook have and now has to catch up. There’s also a clear need to hold people accountable for data at a board level with an understanding of the latest laws and regulations. Digitalisation holds the key to success as long as there’s a clear data strategy and common standard for data management.
The rise of fintech will be another key driver to deliver sustainable finance goals and help innovate the asset management industry. In the near future, blockchain technology will make portfolio management, administration faster and more cost-effective.
In order to succeed in the industry’s mission, it needs to mobilise private investors and take the younger savers with them on this journey – this means providing financial literacy and explaining why and how funds, in particular sustainable funds, can play an important role in their financial wellbeing.
Photos of the ALFI Global Distribution are available here.
For further information:
Alena Schluenz, Senior Communications and Industry Affairs Advisor, Tel: +352 22 30 26 - 1, email@example.com
Notes to editors:
The Association of the Luxembourg Fund Industry (ALFI) is the representative body of the Luxembourg investment fund community. Created in 1988, the Association today represents over 1300 Luxembourg domiciled investment funds, asset management companies and a wide range of service providers such as custodian banks, fund administrators, transfer agents, distributors, legal firms, consultants, tax experts, auditors and accountants, specialist IT providers and communication companies. The Luxembourg Fund industry is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg-domiciled investment structures are distributed on a global basis in more than 70 countries with a particular focus on Europe, Asia, Latin America and the Middle East. For further information, do not hesitate to consult our website at www.alfi.lu