2020 saw several major events including the COVID-19 pandemic, lockdowns, a global recession, deteriorating US-China relations, and a new US president. What issue has affected the retirement industry the most?
COVID-19. Funds are dealing with an environment of ever-evolving sophistication and rising expectations, while also managing the personal, economic, and operational effects of the pandemic.
Historically low inflation and quantitative easing have placed returns under pressure and the return environment will continue to pose challenges.
One way we’re seeing asset owners meet this challenge is to optimise efficiency and generate operational alpha. They’re streamlining operational processes, looking at digital and tech channels, and asking more from their providers.
As an example, trading services, such as collateral management and securities lending, can enhance returns.
Great service providers, including their people, technology, and systems, need to work closely with their clients and become an extension of the asset owners they support.
What types of tools can asset owners use to generate more operational alpha and boost returns?
Funds and service providers will need to do more with less. Service providers need to ensure continuity of service through all market conditions. The pandemic has highlighted the importance of having control factors in place when black swan events occur.
Returns are going to be constrained and costs reduced, which is challenging. We need to leverage technology and automation, removing manual touch points and where possible bespoke processes to benefit from scale and further optimise efficiency.
A good example of this has been the take up of Zoom and other virtual capabilities. Digital communication is here to stay and will become a part of everyday normal business practices, regardless of COVID. There are times when you can get a similar outcome now without necessary needing to travel, but businesses need to also maintain a level of face-to-face interaction
What are the opportunities for asset owners?
While equities will be favoured over fixed income, and there’s a strong argument to increase emerging market fixed income allocations in a low-yielding environment, asset owners will also continue to search for new investment opportunities. Are they in the real asset space, listed space or some other area we haven’t contemplated yet?
Considering the impact COVID has had on employment, managers and governments need to work together to boost investment in infrastructure and other domestic projects that employ Australians.
Infrastructure can be mutually beneficial for members and the public, which are both focused on long-term outcomes.
How has the focus on ESG shifted through the pandemic?
ESG will remain a key consideration in the way investment returns are generated in the wake of COVID. Climate change related risks remain a key focus for investors, but the global pandemic has brought greater attention on social issues. Members’ values and principles have become hard to ignore and increasingly, investors expect their money to be managed with ESG principles in mind.
It’s making organisations look at their business practices, and what and who they represent. Back in the day it was a novelty. Now it’s a must.
The results from the US election mark a change in direction. What impact do you think a Biden presidency will have?
The thing we must recognise is the importance of unification, which is what Joe Biden emphasised in his victory speech.
To move forward economically we need to continue to build upon important global relationships and key trade partners.
How does J.P. Morgan differ from your competitors?
Our global footprint and wide capabilities separate us from our competitors.
We are uniquely positioned to partner with the superannuation industry as we offer end-to-end support and services underpinned by our people, who, across the globe, ensure our clients are highly supported as global investors.