Post-pandemic, there will be a golden opportunity for active asset managers to assume the role of guardians of the ‘stakeholder capitalist’ economy. But to do this they need to move the conversation away from products, price and performance and engage their audience on a different level.
The domination of passive funds over active in recent years is undeniable. Figures from Calastone indicate that passive funds have seen inflows of £19.7 billion in the last three years, while active funds have seen outflows of over £2 billion[i]. Cost appears to be the leading factor in this changeover. Active funds simply can’t compete on price. This has led investors to move their money.
But we may be at a turning point. December 2020 saw £1.7 billion flow into active funds, representing the best month since July 2017. This sets the stage for a resurgence in 2021, when there is the opportunity for active asset managers to win clients by changing the conversation from cost and engaging their audiences on a different level.
Profit but not profiteering
Trends, such as online shopping and working remotely, have accelerated during the pandemic. The same is true of consumer and investor expectations of the companies they buy from and invest in.
Now, more than ever, customers expect businesses to act ethically and responsibly and put people before profit, with a growing backlash against companies seen as profiteering from the pandemic.
Similarly, investors are increasingly adopting an investment approach based on their values,
despite this often carrying a higher fee. This is shown by the inflows into ESG funds. There’s a growing consensus that companies that act responsibly have a greater likelihood of future success, while those that do not act in the best interests of society and the environment will ultimately fail.
The new style economy
It’s widely acknowledged that society and the economy will look very different post-pandemic. One concept that is driving much discussion is ‘stakeholder capitalism’; the idea that businesses are obligated to act in the best interests of all stakeholders – including consumers, employees, and society – not just shareholders. For asset management, the thinking is that, for the economy to recover and thrive, investment should be focused where it will do the greatest good (and least harm) to the workforce, the community, and the environment.
For this to happen, there must be guardians we trust to make this assessment and direct capital accordingly. This is a role that active asset managers were built to fulfil.
Let’s change the conversation
When companies are judged not only on the hard metrics of their profitability but also on metrics around employee welfare and environmental impact, the strengths of active asset managers come to the fore. This task cannot be completed by algorithms alone; it needs human insight and skills that active managers have spent decades perfecting.
This is an opportunity to change the conversation. Discussions around the cheapest fund are far less relevant. The narrative that matters is the crucial role that active managers play in society, and the influence they have in creating the world we want.
This doesn’t require an operational change for active managers, which already function as guardians of client capital. For many firms, this is detailed at length in the marketing touchpoints that explain investment philosophy and process. But it’s a narrative that just isn’t resonating with investors in a simple, powerful way.
Building your brand on guardianship
Investors who allocate their capital away from passive funds and into active ones are not just choosing a different product but a different perspective. They believe their money can achieve a return and a build a better world.
This is a far greater responsibility to place in a fund manager’s hands. The message that the chosen active manager warrants the role of trusted guardian cannot be communicated just through investment products. It must be conveyed through what you want your brand to stand for in the eyes of your audiences.
Outside of the asset management sector, it’s easy to name companies that connect with their audience through what they stand for rather than just their products, from Patagonia to Ben & Jerry’s. The same thinking must now be applied to inspire investors and drive the resurgence of active management.
The power of your truth
It’s time for active asset managers to look beyond products and performance to find their brand truth: what they stand for and how that reflects the values of investors. Moving from the rational to engage emotions and connect with their audience in a powerfully simple way.
Powerfully simple is what we do at Arthur London. We’d love to help.