Institutional Asset Manager Newsletter 02.06.23

The genie is out of the bottle…

Never ones to rest on their laurels, EU regulators have decided to shake up the MiFID II regulations, put in place just four years ago, by unwinding rules that force portfolio managers to pay separately for research.
This follows concerns that the research unbundling provisions have detrimental effects on the availability and quality of company research in the EU.
According to Mike Carrodus, CEO at Substantive Research which conducts analysis of the research markets, such a reverse ferret is far from welcome.
He tells us that the buyside despairs about a return to bundling and says they had long told regulators not to do introduce the provisions because "it would have an effect and they went and did it anyway".
Carrodus says it is likely impossible to roll back the rules anyway, noting that that he has heard innumerable variations on the phrase "the genie is out of the bottle", one of which involves being unable to put the shit back in the donkey…
"The fact is, there is zero propensity among the buyside in Europe to take advantage of [re-bundling] because in a current market environment, having any discussion about fees are terrifying, even if we are only talking about a single basis point," Carrodus says.
Elsewhere, BlackRock reports the impact of market volatility on family office investment with nearly twice as many (46 per cent) intending to make changes to their investment strategy or portfolio when compared with the 23 per cent surveyed in 2020.
The causes of such changes to asset allocation are as expected: volatility, rising inflation and interest rates, and geopolitical tension. Some family offices are rebalancing their portfolios away from illiquid assets to capture opportunities in the public markets, while others are focused on private assets to generate returns.
And those same market conditions are forcing US public pension plans to up their spending on stress-testing.
Research from Ortec Finance research from Ortec Finance covering US public sector pension plans worth a total USD1.315 trillion, found 90 per cent will spend more on tools to assist with asset liability modelling.
Marnix Engels, Managing Director, Pension Strategy Ortec Finance, says the stochastic models currently available to sponsors and their advisers including the Monte Carlo simulations "are too simplistic" and may generate results that do not fully account for major economic and market shock events including those caused by the Covid-19 pandemic.
"Market shocks continue to dominate the investment climate and the degree of uncertainty is extremely high for US public sector pension plan sponsors. It makes sense to increase spending on advanced tools that offer more realistic and useful insights in changing market conditions," Engels says.
Institutional Asset Manager’s sister title, ETF Express, published its third podcast this week, in association with TrussEdge, bringing you the institutional asset manager’s view on ETFs.
Listen now: The Beauty of ETFs.
Beverly Chandler, managing editor of Institutional Asset Manager, is chairing and speaking at Impower FundForum 27to to 28th June. The agenda is here, and we are very pleased to be able to offer readers a 10 per cent discount on tickets, using this link or this discount code FKN3253EMSPK.
Gill Wadsworth, Editor
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