Top fund management executives have expressed concerns that fragmented regulation will hold them back as wealth managers seek to balance the demands of a highly interconnected investment industry against a retreat from globalization.
Regulation of the fast-growing sustainable investment sector is a cause for concern. European regulators have taken the lead in setting standards for so-called environmental, social and governance investing this year with the Sustainable Finance Disclosure Regulation, which aims to improve transparency and prevent greenwashing. But the UK is deliberating on its own version of the rules, which could take a different approach to the EU post-Brexit.
“It’s great that they [UK] Regulators are deliberating on this issue, but we fear we will have a separate rulebook,” said Patrick Thomson, chief executive for Europe at JPMorgan Asset Management, speaking at the Financial Times’ Future of Asset Management event on Wednesday. “My big concern is federalization or fragmentation of regulation. Adding complexity to fit a local narrative may not be the best outcome for clients,” he added.
Differing trajectories between the UK and its larger neighbor create stress for fund managers aiming to offer global strategies to clients. “When there are nuances and differences in regulations in each European market, it makes it very difficult to have a common product across those markets,” said Jeremy Taylor, chief executive of Lazard Asset Management.
Stockpicking fund managers are also increasingly affected by deglobalization. As global supply chains have collapsed under pressure from external shocks from the coronavirus pandemic, Russia’s invasion of Ukraine and US-China tensions, many companies are now looking closer to home as they consider reversing decades of global outsourcing.
“Over the past 10 to 20 years, companies have mostly been valued by revenue. Now it’s about operating profits and how they incorporate costs into their model. Therefore, we will be more selective when selecting the companies,” said Fiona Frick, Managing Director of the Swiss wealth manager Unigestion.
“How will they react to a world that is becoming less global? [with] more onshoring? You have to be a lot more careful about what companies you invest in,” she added.
It has been crucial for investors this year to be able to assess the impact of economic shifts in supply chains, whether due to rising energy costs or changing production patterns.
“We have a large body of analysts around the world who are able to make informed decisions about companies in China and Taiwan and other parts of the world that produce goods, services and equipment for companies in the US or Europe . ‘ said Thompson.
“This is incredibly valuable insight for understanding the challenges that organizations face. . . So deglobalization, yes, [is a factor] but this is still a global investment management industry.”
https://www.ft.com/content/f8580286-82e0-403e-9828-d5c063728d1f Fund managers are sounding the alarm about regulatory fragmentation