PR Outlook 2021 – Four Themes to Watch in Asset Management
Everyone will agree that 2020 has been an extraordinary year – one that none of us will ever forget. While finishing the year in as strong a position as possible is arguably the top priority, we would be remiss not to look ahead to 2021 and try to prepare for what’s to come in the world of asset management. We don’t have a crystal ball and are not in the business of prognosticating, but there are several important industry trends that we are watching closely and from a communications standpoint, helping our clients navigate.
Our Next Commander-in-Chief Will Be a Game Changer for Markets
The race for the White House has significant consequences for asset managers both in terms of investing and how they run their businesses. From an investing standpoint, managers I’ve spoken to believe that the election’s impact over the near-to-medium term for U.S. equities is more likely to be seen at a sector level than at the index level. Therefore, as a manager, picking your spots and articulating the rationale for why you may be allocating to certain sectors will be important for providing investors with a sense of comfort.
Additionally, the prevailing view amongst financial institutions has been that a Trump victory may have more favorable repercussions for their business operations given the likelihood of lower corporate taxes and a more relaxed regulatory framework. Interestingly, a number of managers have more recently shifted their tilt towards the Biden camp, signalizing that they may be willing to sacrifice the present value of their firms for an opportunity to bring more predictability and less chaos to markets. It’ll be interesting to see how this plays out but either way, expect investors to be on edge and for asset managers to try and communicate frequently and transparently to mitigate emotional decision making.
Active Investment Management is Back
Passive investing has grabbed headlines and has been in vogue over the past several years due to lower fees and outperforming active strategies. However, increased volatility and dislocations resulting from Covid-19 have put proven, established active investment managers, particularly long-short hedge funds, distressed credit funds and traditional investment firms back in favor.
As investors look for unique opportunities to put capital to work, they are now more willing to pay for differentiated alpha. We believe this trend will continue. Keep a close eye on private credit, and direct lending in particular, which we think will further surge as corporates in the U.S. and abroad look for more flexible terms and attractive financing options. Private equity deal flow, especially in the middle market, will continue to find its footing after a tumultuous start to 2020. Many businesses are rebounding and along with their PE backers, are looking for ways to strategically scale. Private credit and private equity firms will look to leverage thoughtful communications and marketing initiatives to be seen as strategic partners and business builders that bring depth and breadth of experience to companies and their management teams, to help create long-term value.
ESG and Societal Issues Will Remain Top of Mind
ESG is a big time need to have, and it’s no longer enough to say you’re committed to ESG. Investors now expect ESG principles to be integrated into asset manager’s investment strategies and want to see the actionable ways in which it is benefiting their investment portfolios. This trend will intensify as ESG increasingly becomes a measure of investor confidence. Asset managers will need to do more in the way of communicating and demonstrating the actions they are taking and the value it is adding. They would be well-served to ensure they are viewed as bringing a differentiated approach and mindset to ESG investing.
Social issues related to equality, diversity and inclusion, and racial injustice have also furthered investors’ desires to see their managers take a stand and make a real difference in their companies and communities. Financial media, employees, investors, shareholders, investment consultants and other stakeholders will hold asset managers accountable for the steps they take to do what’s right. This will undoubtedly be an area of focus for firms focused on managing their brands and reputations given the far-reaching consequences of making a mistake. Look for firms to continue highlighting their commitments to addressing these issues and showcasing the changes they are making to their firms and business models.
How People Work Together Will Look Different
The asset management industry quickly adapted to successfully serve the needs of clients and employees amidst the Covid-19 health pandemic. While many employees will certainly return to their offices when it is safe to do so, there is no doubt that Covid-19 has accelerated virtual engagement and remote working. I’ve spoken to a number of senior executives at global asset managers that are deeply concerned that a significant number of their employees will not want to return to the office…ever.
In certain cases, firms are beginning to open offices in different cities to accommodate employees; some are even moving their headquarters, while others are trying to figure out how to accommodate employees that they want to retain but who are simply unwilling to return to a physical office setting. This last issue comes with a variety of challenges with respect to determining how firms will make decisions to retain talent, how they will communicate their return to work policies, and the steps that they’ll take to ensure that they mitigate liabilities with employees, clients, vendors and other stakeholders. It also begs the question of how firms will attract top talent and the flexibility that organizations are willing to provide in light of this “new normal.” After all, asset management is a talent business and without the right people in the right seats, you don’t have a business.