Index management is about much more than benchmark replication. Clients aware of this fact are quickly shifting the way they evaluate funds in search of something that exceeds traditional expectations.
As a parent of four children who are now entering their teenage years, I spend quite a lot of time educating my offspring on the asset management industry. Exhausting conversations, to say the least. One area that does resonate with them, however, is doing business for a purpose and cause, and being responsible.
The concepts of environmental, social and governance (ESG) factors and good stewardship have been a great way to introduce asset management to the younger generation, but being responsible goes further than ESG and good stewardship.
As index assets continue to grow, clients are becoming more aware of the need to partner with a manager that has their best interests in mind. A 2017 PwC report (Asset & Wealth Management Revolution: Embracing Exponential Change) puts the present day passive assets under management (AuM) at around $14 trillion. According to that same report, the number is expected to hit $37 trillion by 2025.
A growing proportion of the clients who make up those numbers are realizing there is more to selecting an index manager than simply picking the one offering the lowest headline fee. Here are some of the central tenets that we believe a responsible index manager should hold:
Someday I hope my kids appreciate the ins and outs of synthetic exchange-traded funds (ETFs) and currency overlays, but in the meantime, being I’m happy they understand the need for the asset management industry to be responsible.
How people feel about the prospects of risk and reward is important to 'journey planning' in DC schemes. But does an individual's natural aversion to losing money impact their retirement saving?
Physical gilts have generally offered a yield pick-up over equivalent swap-based exposure. Yet this premium has declined over the past two years as pension funds have continued to invest heavily in gilts to match liabilities. Let's consider how much this premium might have to fall for investors to swap bonds for swaps.