How will asset management be affected by the COVID-19 crisis?
By Richard Dunbar, Head of Research, Aberdeen Standard Investments
The COVID-19 pandemic is like nothing any of us has ever experienced. The crisis will undoubtedly have far-reaching implications for people, businesses and society as a whole. The asset management industry also faces monumental challenges, as it seeks to continue to turn savings into investments for clients large and small. This task has perhaps never been as great – and the lessons we have learned will be vital in helping rebuild the world that awaits. I believe we are up to the challenge.
But first, we must ask a few questions – and none more important than how we see ourselves as an industry. Central banks and governments have done everything they can to try to stimulate growth and alleviate the economic pain. The financial sector must now look to how it can play its part. How the asset management industry behaves in this environment – as owners of equity, or providers of new equity or debt – will be under scrutiny like never before.
We, and the companies in which we invest, have always considered that we owe a duty to a broader set of ‘stakeholders’ that just shareholders. This includes customers, regulators and the communities from which companies operate and draw their staff. In the current environment, all eyes will be on the fulfilment of that broader responsibility.
Similarly, we see the impact of the pandemic as an accelerant of existing economic, market and social trends. None more so than the ESG agenda which will, in our view, remain at the forefront of investment thinking. It is one that we wish to pursue. And, more importantly, it is one that our clients wish us to pursue with even more vigour.
At Aberdeen Standard Investments, we have always advocated engagement and thoughtful stewardship of the investments we own on behalf of our clients. This is likely to prove the most challenging corporate profit landscape of my investment career. Expectations are already that corporate profits will fall by a third. Unfortunately, I suspect that this may be too optimistic. Similarly, dividends, one of the ‘true norths’ for analysing the health and prospects of a company, are disappearing at an unprecedented rate as businesses husband their cash resources and reflect on an uncertain future.
As long-term investors, we can help firms recover and return to profit. After all, good companies don’t become bad businesses overnight. Helping them to get ‘from here to there’ will be important over the coming months. As we have seen over the past few weeks, despite high levels of volatility and low levels of liquidity, the equity and bond markets have remained open to companies and issuers who have clear plans and strategies to get themselves through the current problems.
Talk, talk, talk
This is also a time that, as active managers, we must continue to show our worth and demonstrate how we can meet our clients’ expectations. Communication and transparency are critical.
This includes getting the simple things right; to walk with our clients and be honest as to how we see the economic and market landscape. The outlook is as uncertain as I have ever seen. However, being open about what we think will be the potential outcomes and how we construct portfolios to reflect these eventualities, has never been more important. We need to continue to ‘do our homework’ when looking at the equity, debt and other assets in which we invest. While the economic and market backdrop may change, the value of good research remains vital. This is especially true in a world that is likely to see more leverage by governments, companies and individuals.
Work smarter, not harder
There is little doubt that as we emerge from this crisis, many sectors will face numerous changes. One of the biggest impacts for the asset management sector will surely be on working practices. We had already embraced flexible working – and these trends seem likely to continue. We’re also all learning to connect in a slightly different way, one that is family, client, business and community-friendly. I hope and believe this mind-set will endure over the difficult months ahead.
We live in unprecedented times. The current crisis is far from over and many challenges lie ahead. These will place a considerable responsibility on us as custodian of savings, owners of equity and debt, as well as participants in our changing societies. I remain confident that we are up to the task ahead.