Posted inFSA Spy

The FSA Spy market buzz – 27 May 2022

Bank of Singapore hires; Managed floor dreams; Asset management consolidation; Bottoming or something else; Goodhart’s Law; Vanguard’s ESG realism; State Street’s ETF portal; and much more.

“This is active’s time to shine” an old industry friend and veteran asset management salesman told Spy this week. Over several Malfy gins and tonic we put the world to rights. “When markets get volatile, nimble strategies that ignore benchmarks have the chance to stand out.” That all sounds very good in theory, but will it work out in practice wonders Spy? Apart from the idiosyncratic China market which is an active managers dream, active has had a poor decade in the rest of the world. Its share of total assets is now only about 48% and a report by BCG reckons that could fall to as low as 41% by the 2026. Testing times, indeed.

Bank of Singapore (BoS), OCBC’s private bank, has announced a new head of alternative investments and managed solutions.  Robert Reid, who was most recently country head of Hong Kong and Taiwan at Blackrock, will join on 30 May. He will remain based in Hong Kong.  This very senior hire sends a strong message to the market, reckons Spy, that BoS is taking its growth ambitions in the sector very seriously. The role was previously held by Fidelis Oruche, who left the business a few months ago. This hire comes at time of heightened interest (again) in alternatives, as increased volatility has shaken global markets.

Here we go, again. The terminology threw Spy a little, but it did not take long to see the parallels. An American ETF provider, Innovative ETFs, working with subadvisor Parametric is going to introduce two “managed floor” active ETFs. Yes, that “managed floor” is all about guaranteeing the maximum downside. Well, if the floor was zero, Spy could buy it, but the floor is going to be 10% down, apparently. This smacks of those structured products that appear from time to time promising to turn lead into gold even in the most volatile times. Spy would suggest that any investors considering this sort of strategy, get out the magnifying glass and read the small print. Twice.

Are there too many asset managers out there? Martin Gilbert, the outspoken chairman of AssetCo thinks so. He reckons more consolidation is on the way. Already, to date this year, $18bn worth of M&A has happened in the sector. The real question is, however, does all this M&A solve the key problem: performance? If two smaller active asset managers get together and performance remains weak, does it make a difference? Asset management remains incredibly innovative, with boutiques popping up all the time. That is what makes the sector so interesting, reckons Spy.

Several markets commentators are mentioning the B word. No, not bear market, but more optimistically, “bottom2. Are we reaching a market bottom? After several months of fairly brutal market activity in everything from bonds to crypto to tech, we have seen a bit of a rally. A few indicators certainly give some optimism. Jeroen Blokland, of multi-asset consultancy True Insights, tweeted last night, “I am not calling the bottom but pointing out that markets are progressing towards a point that there could be a bottom.” Spy has seen numerous similar comments such as these of late. Perhaps more weightily, though, Bank of America’s Bull / Bear chart has gone green because we have reached maximum bearishness of late.

Ever heard of Goodhart’s Law? Simply: when a measure becomes a target, it ceases to be a good measure. A popular example of this is probably The Cobra Effect. The British government, concerned about the number of venomous cobras in Delhi, offered a bounty for every dead cobra. Initially, this was a successful strategy: large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. This phenomenon is well articulated by Jesse Felder in this thoughtful piece suggesting that ESG is going exactly the same way. The Stuart Kirk HSBC, controversy this week touched a raw nerve because, Spy reckons, a lot of people feel, privately, that Kirk was absolutely right. What are we measuring and who are we measuring it for?

Perhaps more bluntly, Vanguard’s CEO, Tim Buckly was quoted in the FT this week, “Our duty is to maximize long-term total returns for clients. Climate change is a material risk but it is only one factor in an investment decision. There is already a pensions crisis and we have to make sure that climate concerns do not make that even worse.” This is the first time, in a long time, Spy has heard someone so senior articulate today’s investment dilemma. Millions of retired voters….

State Street has launched its ETF Fund Connect Portal in Singapore. This allows local investors to access 960 different ETFs from 43 different issuers. The portal is already active in the US and the group has also got approval to roll out the service in Australia, too. State Street will be competing with the likes of Saxo, which has allowed local investors to access a wide range of US and European ETFs for several years.

After the tragic Texas mass shooting this week, some very awkward, but naively simplistic questions have been bandied about against Blackrock online. The firm remains a staunch advocate of “conscious capitalism” and simultaneously is “the largest shareholder of four of the biggest gun and ammunition companies in the US.” Spy says: it is hard when you are so large, that you “own the market”.

Spy loved this: “As you become an adult, you realize that things around you weren’t just always there; people made them happen. But only recently have I started to internalize how much tenacity *everything* requires. That hotel, that park, that railway. The world is a museum of passion projects.” ~ Brett Collison.

Until next week…

Part of the Mark Allen Group.