UK & Europe:

I will start with a quote from a friend in the industry:

''Having been through various RI cycles, it is always when it seems like nothing will ever go wrong again that everything dips, and then when it seems like nothing will ever be good again, it takes off''

Not sure where you see yourself right now, but we are all in different states of realism/optimism/pessimism. This update is a take on what I am hearing and seeing across the listed space for RI.

A lot of it has been taken from the research project I have been doing on what RI teams will look like in 3-5 years’ time. I have been speaking with sustainability leaders from asset managers and asset owners, which has given me a front-row seat to current thinking, and future strategy.

Please reach out if you would like to learn more, or if you would like to have some input.

What I have learnt is that there is a lot of passion, and appetite for more sustainability, but there are some very real frustrations.

Asset owners still have a clear mandate to invest responsibly, with a long-term gaze, and many of their trustees want more positive outcomes, not less.

The main themes are the diversification towards private markets and the need to hire specialists to help with due diligence, and the more complex frameworks. The need to hire specialists in areas like technology/data, without losing sight of the fact that it was the ‘generalists’ who built the original teams and functions, and who are now leading the teams. Also, the need for industry collaboration around important issues like the availability of consensus data in stewardship (how are other firms voting? How can we pull together as an industry to work with regulators to improve this data, and push companies for improvements?).

The hiring has been in stewardship oversight, mostly around the 3-7 years’ experience mark. Some hires have been to help with the oversight, while allowing leadership to focus on regulatory response (and in reality, mostly do the 14,000-word submissions because it is the first time, and it needs to be done right!). Other hiring has been around themes, with governance and nature being the key growth areas.

As the smoke has started to clear around the inflation crisis, the political pushback, and the regulatory upheaval, it is clear that previous pressures on active management at asset managers remain. From my conversations, it is not clear what the future of active looks like. Not in an existential way, but from the perspective of how is money made in the current economic cycle, beyond cutting costs! Also, what are the sustainable products that are going to create value and outcomes?

The bifurcation of the asset management industry remains, and it looks like successful firms will either be large, with scale, or small and differentiated.

The small specialist firms are getting to the end of SDR, and SFDR implementation, and there is some hope that we will see growth from a product, strategy, and headcount perspective.

The strategic growth in the industry has come from the larger firms who are working around the political pressures by giving their clients options on whether they want sustainable outcomes in their voting or not. This has not been unanimously popular with other managers, but it is the first strategic response to the pushback, and hopefully heralds the start of innovation that is needed.

In terms of alpha, there are still poor signals in the growth of AI firms, war in Ukraine, and the bubbling tensions in the Middle East.

Hiring has been focused around stewardship, with the movement at some of the larger asset managers, particularly with passive exposure causing one of the most proactive, and positive hiring drives seen in nearly 18 months.

There is very little in the way of senior, strategic hiring, and the is talk of people seeking more impact in private markets or at endowments, and foundations.

There is also a reversal of talent moving from consulting to asset management, with senior, disaffected people at asset managers moving in the other direction. Due to lower hiring volumes, consultant spending is going through the roof.

North America:

While the noise has been draining for all of us in the industry, one of my clients said to me ‘there is nothing more that they can throw at us’. This has become a common take, and there does seem to be some real drive to grow beyond the political crisis (conscious this could all be upended by the close of 2024).

Most of the pushback is referring to some of the more lively red states, but asset owners in the US is where a lot of the current trends can be traced back to. Feeding off political rhetoric written by oil lobbyists, they have created the zeitgeist perfectly timed with war, higher inflation, interest rates, and new regulations.

There is a bifurcation of red state/blue state asset owners and their appetite for sustainability, which I perfectly in tune with the bifurcation and regionalisation of sustainability from a US/Europe perspective.

Add to this an obvious reset towards to risk-based investing, versus outcomes; and we can see where the polarisation is.

Having said that, the mood music Is still positive from nearly all the conversations I have with strategic leaders. The negativity is more of a weary shrug, as in this is a necessary hassle to get to the next stage of growth.

What does this growth look like?

There has been a lot of hiring in stewardship. US firms have seen a need to hire a senior engagement person, or leader to help with the differentiated US regulations, and, of course, the different board room attitude. The realisation being that while US and UK (or European) cultures look and feel the same they are profoundly different.

Teams are still growing to try and make sure they have the look-through from asset allocation to stewardship, and a lot of work is going on behind the scenes on frameworks, integration , and traditional stakeholder buy-in conversations.

Hiring has moved from generalists to specialists (stewardship as an example). People are needed who can read rooms, and unite people around a common goal. This makes sure you can cross train and get everyone to see the bigger picture.

For external managers it is less about resource, and more about the direction of skill sets that are being hired.