Responsible investing includes allocating to poor-ESG performing EM countries and helping them shift to greener solutions, instead of divesting completely, experts said.
Traditionally RalstonÆs group focused on ôthe big names who matterö, as he puts it, such as Citi, Credit Suisse, Deutsche Bank, HSBC and UBS; banks with the size, scale and worldwide reach to deserve a special unit within Schroders to handle sales and service, for both retail and high-net-worth products.
The top 15 of these banks now account for about $32 billion of sourced assets, or close to 15% of SchrodersÆ total AUM.
While this remains a key source of revenue, Schroders has seen business from insurance companies grow more rapidly, and in the past year at an unprecedented clip, around the world.
Much of this growth reflects the rapid development of variable annuity products, which are huge in the US, beginning to take root in Europe, and popular in certain Asian markets such as Korea and Japan.
But it also reflects SchrodersÆ desire to diversify its client base. Banks have been great for business, but relationships can be short-term, as clients seek hot products. Insurance companies are looking for longer-term solutions, often with more conservative products. Many unit-linked funds have bond strategies. The margins are much lower, but insurance money is far more æstickyÆ.
This kind of longevity has become more important to fund managers in the past year, especially in Europe and Asia, where the credit crunch has led to massive rotation of managers. In Asia, expectations have also risen, and short periods of under-performance can get managers fired (or hired) quickly. ôSo we are addressing channels where assets are stickier,ö Ralston explains.
This has led to changes at the firm, which has had to build new teams of product managers including actuaries, people that can speak the language of insurance. It has also necessitated tailoring more conservative investment products.
Overall, Ralston says the banking channel continues to grow as well, but the firm is now more reliant upon Asia. Asian savings continue to pile up and need a place to go. Singapore, for example, has attracted many global banks to establish high-net-worth businesses û and Schroders, like many rivals, has identified this as an important source of growth.
Furthermore, risk appetite in Asia remains firm. Last summer, European investors immediately slammed the door on risk-taking, and retreated en masse to cash and low-risk bond products. Asia only began to lose its appetite for risk around April, when domestic inflation reared its head. But even now, while inflows to risk products from Asian markets have flattened, Schroders has not experienced redemptions.
[Separately, New York-based Strategic Insight reports that in July, Asian mutual funds attracted $10 billion of new inflows, versus net redemptions of $70 billion globally, mostly from Europe.]
ôThere is no sign in Europe that risk appetites will return,ö Galston says, noting that banks, which dominate distribution there, are keener to rebuild balance sheets using depositor money rather than shift it into fee-based products, and therefore have kept interest rates high.
Inflation and oil prices are rattling investors in Asia but the picture is mixed, and there remains appetite for products such as commodity funds, particularly in metals and minerals, and in agriculture û two businesses that continue to attract inflows. The Middle East is another theme that continues to generate business from Asian investors, particularly via private banks. Banks continue to seek funds that take advantage of climate change. Lastly, Ralston says the firm has this year launched two convertible bond funds, one for global equities, a second for Asian equities, that are selling well around the world.
Inflation, fluctuating interest rates, Covid-19 shutdowns, and sporadic reopenings have led to bouts of volatility in the market, with tech stocks bearing the brunt of the selling over the last month.
Amid today’s macro landscape and the need to rethink portfolio planning, asset owners in Asia Pacific are more eagerly embracing responsible investing, says Nuveen’s Simon England-Brammer.
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