Attempting to evolve the current product development strategies, instead of proliferating them, is how product managers will keep ahead of the innovation curves and regulatory hurdles of the future, commented panellists at the Association of the Luxembourg Fund Industry (ALFI) Asset Management Conference in Luxembourg.
The panel, headed by Rosheen Dries, Partner, EMEIA wealth and asset management lead at EY, questioned how product innovation and strategic structuring will likely evolve amid the backdrop of growing ESG initiatives and increased industry regulation.
In the session, Dries asked the panellists how, broadly speaking, product innovation can avoid proliferation, and ensure mutual fund economics deliver desired returns for investors and managers alike.
“Product managers are facing so many external factors, whether that comes from ESG pressures or digital assets as a new product,” Dries said. “What is the difference between proliferation and product innovation? And how can product managers find the balance between actual innovation and adding features to products — catering to the known needs and the unknown needs of investors?”
In answer to the question, Suzanne Williams, global head of product development at HSBC Global Asset Management, said: “Evolution is the word I would use.”
“The industry needs to be creating forward-thinking products. As product professionals, we need to be kicking the tyres and ready to bring these forward-thinking products to market. We need to give options to investors and provide solutions for investor needs, needs that may not be obvious at first sight.”
Williams added: “Meeting investor needs in existing products can ensure we do not have proliferation. As such, we need to continually review products and, where appropriate, evolve them so they are ahead of the curve in meeting investor needs. Evolving existing products rather than creating new ones can be cost efficient both for houses but more importantly for our investors.
“Bringing new, innovative products to market will however always be necessary. In doing this, it is important toreview ideas and instill these ideas through in-depth analysis to meet investor needs and create robust products. Innovation is about quality product not necessarily quantity.”
Peter Preisler, head of Europe and Africa, marketing and client relations at Oaktree, commented: “There needs to be ongoing dialogue with existing investors. Product managers must understand trends in the market and focus on evolving products to continue to meet investors’ needs.”
Finbarr Browne, CEO of Schroders Investment Management (Europe) S.A., highlighted: “Clients will certainly tell you what they need, but you also have to use analytical tools to help predict future needs as data emerges through client engagement and market insights.
“Product innovation is accelerating and the definition of product itself may need to be broadened given it needs to incorporate many new developments in the underlying investment strategies, the nature of the vehicles used and ultimately how it might be sold to clients.”
He added: “Asset managers do not want proliferation; trying to sell many small products and establish their track records is difficult, you will also create inefficiencies in terms of management and operational effort. The current challenge is there are so many new investment strategies emerging now, particularly driven by regulatory changes such as the Sustainable Finance Disclosure Regulation, so there is an increased risk of proliferation. It is therefore very important to have a strong and controlled product development process.”
Dries then asked the panel whether fund administrators would be able to cope with the current pace of innovation.
Browne said: “Many fund administrators are on relatively early distributed ledger technology (DLT) journeys. It is important asset managers do not sit back on the topic of innovation within fund administration and a partnership approach is needed with their service providers.
“We are all busy with what needs to happen today, but you have to make time to talk to your fund administrator about their innovation as ultimately it will form an important part of your product offering. Changes, such as those possible with DLT, may cannibalise some of the current services offered by fund administrators, but it will open the door for other services.”
When asked by Dries on the future of the mutual fund, Williams concluded: “There is of course no crystal ball in financial services, but I predict mutual funds will remain given the protection and security they offer investors. They will however need to evolve and adapt. That will be the challenge to the regulators; the need to ensure regulations and structures remain current and continue to meet investor needs The mutual fund as an entity will evolve, but I do not think it will disappear.”
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