A strong voice
Written by Laura Blows
Laura Blows speaks to Christian Dargnat, the new president of the European Fund and Asset Management Association (Efama) about highlighting the important role asset management plays in society and how it needs to develop
Q: How are you finding your new role as president of Efama?
A: While the role is new, I have been working as vice president of Efama for the last two years. I think it is an exciting time to take on this role as there are currently many challenges and many opportunities to embrace. We have a key role to play within finance and the whole economy.
Q: What opportunities do you expect to have in this role?
A: I would identify two main opportunities here.
Today, more than ever, Europe is looking for growth. If you want to grow, you need to invest. If you want to invest, you need some capital. If you want capital, you need to have savings. And that is exactly where we are. We are altogether collecting assets and savings and I think in this environment we need to look at long-term investment.
On the one hand, companies are calling for sustainable, long-term financing and we are ideally placed to offer this. The asset management industry is in a position to find alternative ways of financing this gap on the side of the bank model.
On the other hand, European citizens are looking for long-term, robust, transparent, diversified and cost efficient solutions to prepare for their future. Our client-centric business model takes fully into account that for our future retirement we need to rely on ourselves more rather than on the state.
We are the main link between the corporates and the investors, both of which offer strategic opportunities on both sides.
Q: What is Efama currently focusing on?
A: As we are part of the solution not part of the problem, our first focus is to innovate for the benefit of the economy.
The Ucits international recognition demonstrates the European capacity to succeed. Efama represents the industry of the long-term investor and is launching various initiatives in this way.
We are working closely with the European Commission towards building an Officially Certified European Retirement Plan (Ocerp) with unified standards across Europe. Although we are only at the beginning of this process, I see this as an important step as we are always striving to create solutions that are of benefit to all European investors.
The initiative is interesting from a long-term investing point of view, considering an individual has the ability to pay into a pension across Europe. I think we should take the opportunity to work together with the regulator to try to effectively create a framework that allows an individual to invest in a pension regardless of where they are based or how many different countries they work in without being affected in any way. I think it will align the framework across Europe and I think it will be an interesting focus for us as it will boost our industry, our capacity to innovate, and will improve our competitiveness.
Another goal of ours is highlighting ESG investment. When we talk about long-term investment you need to take into account the extra financial criteria, such as ESG issues. Our prime responsibility is to invest in the best long-term needs of our benefi-ciaries. We live in an increasingly interdependent world facing social, governance and environmental challenges that can undermine the performance of our investments. Indeed, there are opportunities to identify risk through focusing on ESG, so I think if you want to outper-form, within a long-term horizon, you need to integrate the ESG criteria. Acting like this, we will protect and enhance our investment returns as well as defend the interests of our clients.
Our second focus is to ensure a strong voice across the industry.
We have to make the client and the regulators aware that in the past few years we have faced an unprece-dented rate of regulation. We would like to take a break from this and find some synergy of the rules and regulatory moves. I think we should assess both the new and old changes that have taken place across the industry, and most importantly, analyse what impact these have had on our clients. Some will have had an excellent result, some not. We need to take a step back and acknowledge these changes.
At present, the asset management industry suffers from a lack of a level playing field. I’m talking about our situation with respect to other financial products. I am very happy to see that regulators are focusing on asset management for more transparency, but I would like to be sure that we are treated on the same level with respect to the pensions industry and the insurance industry.
Another important focus is Packaged Retail Investment Products (Prips) and how we as an asset management industry consider their implementation. The European Commission is seeking ways to provide the same investor protection to these retail investors independent of the legal form of the product or the sales channel. The European Commission is pursuing this aim through the Prips Initiative. To me it should be a clean sheet and should be fixed, as if not it will create problems for certain citizens.
Q: How are you addressing these aims?
A: We try to address these goals through the conversations we have with the European Commission. For example, with a long-term investment fund it could be opportunistic to say ‘why shouldn’t we integrate some ESG criteria in this project’ or ‘how do we further take into account the retail investors needs’? We try to differentiate asset management products, compared to an insurance product for example, and this is a way to do so. This is a conversation to not only have with the European Commission, but also when we are speaking with our own clients.
It was true before my presidency and it will be true after my presidency that we all need to take great care when it comes to our clients. It is in our best interests to safeguard them. Without investor trust, we cannot hope to attract their savings and increase assets under management. We need to first convince regulators and politicians that we have a real added value and that our interests are aligned to that of our clients. We can best achieve this through education of all parties.
We have to try and convince clients that by using ESG criteria we are helping to solve their problems. We are not always on the same page with this argument so we have to work with our clients, but also regulators and politicians. Very often there are decisions made to protect the interests of our clients and we welcome the initiative but we do feel that we are part of the solution and not part of the problem. To me, the regulators are, at times, trying to get rid of a problem that doesn’t exist in asset management. We need to remind them that they need to consider us and we consider them in partnership in favour of the client.
Q: That seems to imply that there is a problem with trust for the asset management industry. Is that the biggest problem the industry needs to tackle?
A: It can be considered a big challenge. Having the trust of our clients is the most important thing and is something we are always working on. I’m not sure if our clients have distrust. It’s more that we need to explain what we do, who we are and we need to be much more energetic in the way we present our products. Education is key. So I do think it is a challenge but we need to take a long-term education view - starting with the younger generation - to explain who we are and what we do and why investment savings are required. Through the media, we need to make people aware that we are an industry that is helping to allocate savings in an efficient way to finance corporates and to finance pensions. Our interests are aligned with clients and we really need to work on this credibility aspect. For example, one of the biggest successes of the financial industry in the last 25 years is the Ucits framework. Twenty-five years ago this framework was created and now we are able to demonstrate that all across Europe we have a framework that is not only considered credible, but has also been a great success. So we should be proud of what we have done and what we are going to continue to do. After 20-30 years we have a product that is considered the pinnacle of investor protection so let’s enjoy its success and continue to work in that direction.
Q: What trends are you seeing from institutional investors?
A: If you look from a geographic point of view you will see that there is a difference between emerging markets, where the rate of growth is around 10 per cent, compared to the developed market, where the rate of growth is around 5 per cent. We need to keep in mind that we are in an industry that continues to grow. We see this growth in products such as ETF trackers. We need products that are dedicated to absolute returns. We need products that are very good at getting their asset return, that are welcomed by the client. There is still a category of products that are used as a possible alternative to ‘traditional’ investments that are becoming more well-known. We have institutional friends asking us to combine different strategies to provide them with a bespoke product. This will continue to grow across the world and all across the institutional segment. This is the direction that we are going in today and this will continue. The shift from defined benefit to defined contribution is a good example of this. This is key and it will impact the solutions available. We are predictably concerned about the growth of loans products. All across Europe many companies and clients are asking us to create loans products to fund SMEs. In some parts of Europe there has been strong growth of SRI products. SRI as an approach is currently niche, but there will come a time when you have to integrate SRI criteria in your portfolio management, although this will probably take a few years.
Q: What are you hoping to achieve during your term as president?
A: To maintain and to reinforce Efama as a strong industry body, and for it to continue being considered as a key voice of the industry. To be able to deliver valuable solutions to assist long-term investment and thirdly, to be recognised as an industry that adds value to the economy.
Laura Blows is the editor of European Pensions