Control: Having, Losing—and Regaining

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Nothing lasts forever. Bull markets wax and wane, economic crises repeat, and (most) managers’ outperformance fades. 

Allocators recognise this—and recognise that, as a result, their power over events extends only so far. They can, of course, exert some influence by positioning their portfolios to react and adapt to changes in rates and market movements; the most sophisticated can be ready to move at a moment’s notice to take advantage of rare opportunities. And yet, even this control extends only so far. They cannot, for example, decide when fund managers or other suppliers merge, switch tack, or disappear from the market completely.

Over the past five years, each quarter has seen an average of 70 M&A deals in the European asset management sector, according to Thomson Reuters. Worldwide, this number shoots up to 177. Many of these deals go unnoticed by the wider market (or rather, the media) but the larger ones are dissected for their “fit” and, inevitably, which of the high-ranking staff from either side will walk.

But what about the end investor? The most sophisticated investors sign up to work with fund managers not just because of their performance, but because of the culture, the process, the people. If the parent changes and a product is shelved or passed to a different department that survives the predictable restructure, where does that leave the client? In essence—out of control.

Thus, the idea of control—or lack of it—permeates this issue.

It is picked up in our cover story, “Escaping the Establishment”, page 10. Investors in infrastructure and other real assets are increasingly ploughing their own furrow and not applying a fund structure to the long-term returns and illiquidity premium. They cite control as the major reason why.

Feeling totally out of control, and being angry about it, is the subject of this edition’s Consultant Corner. Buy lists, frustration, and vented spleens feature heavily. See if you agree on page 8.

We also look at scenarios that appear to be out of our hands in “Making Money Out of a Global Crisis” on page 6, which looks at how investors can address climate change and socio-political evolution. Rather than try to hedge and avoid the downsides of future events, some investors are able to at least make them pay.

For some, control is a happier topic. aiCIO recently visited Denmark to speak to institutional investors and discovered an instance of power reclaimed. On the understanding that allocators know what they’re doing, it seems the financial regulator has handed them the reins. It sounds like it’s working out satisfactorily.

That allocators may be best placed to understand the industry they use and support is an idea which runs through this issue, and indeed is the very ethos of aiCIO. Well, that and “nothing lasts forever”. Need evidence? You’re holding it: The first standalone issue of aiCIO for our European audience. Enjoy!