Please see the below look back at 2020 from Jupiter Asset Management’s Chief Investment Officer:
Jupiter’s Chief Investment Officer reflects on the longer-term implications of a year most unlike any other.
In a year overwhelmingly dominated by the pandemic, it could be tempting to dwell on the challenges that have been presented to businesses and to global society.
Long before any of us had heard – let alone uttered – the words “COVID-19,” there was a trend towards more flexible working in many sectors of the economy, including in asset management. Some in our industry were embracing growing requests for more flexible working arrangements, while others may have viewed them with a certain degree of scepticism, pondering whether fund management was the kind of industry that could accommodate such arrangements at scale.
As much of the world went into lockdown, personal opinions on the merits and disadvantages of remote working became largely irrelevant; a significant policy decision that would, historically, have been the preserve of individual businesses was essentially taken for them.
Simultaneously, the important question as to whether a firm like ours could operate effectively with virtually all employees working remotely for a prolonged and potentially open-ended period was answered; we could, and we did. Indeed, a recent conversation with our head of dealing, Jason McAleer indicated that our industry as a whole has not only coped with the challenges presented, but has seen no perceptible increase in operational errors or issues.
In my view, the changes we have seen have the potential to make asset management a fundamentally more inclusive industry. Put simply, it now feels reasonable to hope that many of those who – for oft-cited reasons, including perceptions of long hours, punishing travel schedules and reconciling the demands of a challenging career with family life – might never have considered a career in fund management, will feel newly emboldened to take a closer look.
If, like me, you believe that more diverse investment teams are better performing ones, then this can only be a welcome development from the perspective of our clients.
Inclusivity leads to diversity
The pandemic and associated changes to working patterns and practices have also reminded us of the value of the office environment, as evidenced by numerous requests from colleagues for permission – which was generally denied, in line with the official guidance at the time – to continue to work from the office as the second UK-wide lockdown came into force.
This all begs a question: how quickly will the potential benefits of changes to working patterns in our sector filter through into the reality of the make-up of our workforce? Naturally, in a profession like fund management, hiring cycles are relatively lengthy. For this, there can be no apologies; the business of taking fiduciary responsibility of other people’s money is a serious one, and it is right that those charged with this duty should first have to prove their aptitude.
Of course, recruitment decisions are largely devolved to hiring managers; while this makes it difficult to “force” change in hiring practices from above, as CIO I am committed to continuing to challenge ourselves.
Changing behaviours: impact on markets and innovation
For a business like Jupiter, one of the more testing trends to emerge over the last year has been a tangible increase in direct participation in financial markets by retail investors. The exact cause of this change in behaviour is difficult to pinpoint, but we can reasonably speculate that it may have much to do with a combination of increased market volatility creating perceptions of attractive entry points, and the simple reality of the increase in available time many people have found in lockdown.
Whatever the cause, there is no doubt that such a sharp increase in activity in stock markets among individual retail investors has had an impact not only on stock prices, but also on liquidity and on sources of liquidity.
For asset managers, this potentially disruptive trend should act as something of a wake-up call; as retail investors in growing numbers show signs of exploring different ways to put their money to work, we must remain relevant, and continue to demonstrate that our products offer value.
As a firm, we place great emphasis on the importance of fostering innovation. A particularly exciting development for us in this regard was the formalisation earlier in the year of our strategic partnership with US-based NZS Capital, LLC (“NZS”), a highly innovative investment boutique which itself focuses on identifying disruptive businesses with the potential to generate favourable outcomes simultaneously for investors, customers, employees, society, and the global environment.
2020: when ESG became truly “mainstream”
Our partnership with NZS also serves as a timely reminder of our commitment to innovation and leadership in the field of ESG investing, a topic that has enjoyed a meteoric rise in prominence over the course of the last year. Indeed, I would be unsurprised if, in the future, social anthropologists looked back on 2020 as the year ESG investing became truly “mainstream.” This is an overwhelmingly positive development, and one to be embraced.
From a fund management perspective, I believe that ESG in the years ahead will be a refinement, evolution and re-categorisation of many of the assessments managers already make when looking at an investment case. How is a company run? Do its activities and/or products cause detriment to the environment? Are its employees mistreated or endangered? Does it mistreat its customers in a way that is detrimental to them and unlikely to build long-term loyalty? Has it taken on excessive leverage in pursuit of short-term shareholder returns that might undermine its longer-term viability? For us, these are not new questions, but they are being asked of us by a broader range of clients and other stakeholders, and with a frequency and determination not before seen.
Such focus on these issues is having a marked effect on markets, and on the way in which capital is being allocated to investment managers. This, in turn is undeniably changing and disrupting perceptions of the characteristics of a business most prized by investors.
The “what” and the “how” of asset management
I believe that the single most important thing we can do as a business is to generate strong and sustainable investment returns for our clients. As the end of every year approaches, we take the time to reflect on our performance; for a year that is likely to stand out in the collective memory for many of the “wrong” reasons, in this particular regard, 2020 has been a year much like any other.
The change, challenges and uncertainties we have all faced notwithstanding, it is pleasing to see that many of our strategies have performed very well throughout this period. Meanwhile, the new colleagues who joined Jupiter through our acquisition of Merian Global Investors have already made a significant contribution to Jupiter, bringing fresh energy, ideas, and perspectives to our debates.
But investment and performance are not the only things about which we hear from clients, who increasingly want to know how a firm like Jupiter manages its money managers. This is perhaps the most important part of the role of the CIO office, and it has been a privilege to speak with so many clients over the course of the year about how we seek to hold our fund managers to account. Put another way, it might be said that in 2020, what we seek to do (generate strong, sustainable investment performance), and how we go about it have become first among equals in the pecking order of clients’ priorities.
In truth, nobody knows how 2021 will play out. With the promise that vaccine programmes may be imminently deployed, a final end to the next chapter of Britain’s exit from the EU in sight, and a the potential for a more stable geopolitical scenario, it is tempting to look forward to the coming year with a great sense of optimism. At the same time, none of us must be under any illusion over the scale of the challenges facing the global economy as the world emerges from the pandemic. Whatever happens, our focus in the CIO office will be on seeking to ensure we deliver the best performance we can, in the most sustainable way we can; it is this pursuit, I believe, that gives us our real licence to operate.
As the end of every year approaches, reflections on the year we are about to leave behind tend to come naturally to everyone.
Look backs at the financial world and investment markets pour out from fund managers followed by outlooks, predictions, and goals for the year ahead.
2020 was a year that nobody could have predicted, and a year I’m sure nobody will look back fondly on.
One of the (positive) key points that can be taken away from this year (as demonstrated in the article above) is something we have been talking about for a while now, ESG is now mainstream.
It’s real, it’s important and it’s here to stay.
From firms and fund managers beginning their ESG journey, to the ones talking about how they already factor in a strong ESG process within their operations.
Whatever our industry takes away from this year, one thing is for sure, ESG is now firmly on everyone’s radar.
Andrew Lloyd
08/12/2020
