EMF CEO Forum: Challenges and opportunities of asset/wealth management

The increase in interest rates in Italy, which have risen in just a few months from 1 percent to 4 percent in the wake of what has happened in Europe and around the world, has had a profound effect on the asset/wealth management field, which must track and respond to numerous other long-term trends, most importantly sustainability. But how do you do this successfully in a moment of rising costs and strong competition between companies and products?

A panel of top managers, including Saverio Perissinotto, Managing Director and General Manager of Eurizon Capital and Head of the Asset Management Division of the Intesa Sanpaolo Group; Sandro Pierri, Managing Director of BNP Paribas Asset Management; Claudio Scardovi, Professor of the Strategic Finance Lab at EMF; and Cinzia Tagliabue, Head of International Partners Network and Chairman of Amundi sgr proposed the issue at the EMF CEO Forum 2023 for participants in the EMF - Executive Master in Finance, a class of participants from different sectors following the four tracks of specialization (Asset/Wealth Management, Banking&Insurance, Corporate Finance&Control, Corporate Finance&Real Estate).

Like past editions, the EMF CEO Forum is an integral part of the Strategic Finance Lab, which aims to investigate how finance can support the implementation of sustainable investments and the integration of ESG criteria in companies. What emerged from the CEO speeches and discussion with participants is a picture of a healthy industry, in which managerial flexibility applied across business functions can turn challenges into opportunities.

The impact of interest rates

The first topic covered by the plan carried out by Andrea Beltratti, EMF Academic Director, and Alessia Bezzecchi, EMF Program Director, concerns the identification of the most relevant trends for the industry. The CEOs agree that the priority is a change in monetary policy and the associated increase in market interest rates, which has almost reached the end of the line for the CEOs whose speeches all offered an in-depth analysis of the causes and effects.

Claudio Scardovi said that today's restrictive monetary policies are a reaction to the excessively loose monetary policies of the past few years, which encouraged, through monetary expansion, the growth of an abnormal level of public and private debt that should be turned into equity from here on out. Cinzia Tagliabue and Saverio Perissinotto pointed out that rising interest rates provide greater opportunities for returns but at the same time risk moving the portfolios of many investors, especially retail investors, away from long-term conditions of efficiency that suggest a greater role for equity investments.

The two heads of firms admitted that the high level of interest rates poses a major challenge for asset management because of the attraction of nominal bond yields in general to investors. Sandro Pierri noted that the rise in the real rate will reduce average growth and also the performance of financial markets, elements that will slow the growth of assets under management for asset management firms, a factor that will require strong micro-processing efficiencies in the face of rising costs due in part to high inflation in 2022.

Trends in asset/wealth management, sustainability and market efficiency

What other trends are relevant to asset/wealth management? Cinzia Tagliabue mentioned real assets, regulation, and digitization, highlighting in particular the comparison between the returns of passive funds and active management and sustainability, an element taken up by Saverio Perissinotto, who argued that the traditional area of investor interest, focused on the relationship between expected return and risk, can now be reinterpreted in light of the relevance of the new parameter of sustainability.

"Can we elaborate on the relationship between sustainability and active management?" asked EMF's academic director. The answers form a diverse and unique picture that includes a reflection on the impact on markets. Claudio Scardovi noted that passive managements can reduce costs for underwriters but at the same time make markets less efficient because of the reduction in the search for useful information to determine the balance value of securities, and Sandro Pierri addressed the aggregate cost of sustainability needed to reduce the environmental impact of production activity and the increase in information asymmetry among investors who can only partially understand and analyze all the elements of sustainability relevant to asset pricing. For this very reason, he foresees a long future period in which active management may again come to dominate passive management.

Corporate, sustainability and policymakers

Picking up on Pierri's last point about the aggregate cost of sustainability, the debate veered toward how to implement sustainability, and who can and should lead the transformation of the economic system in this regard. Andrea Beltratti cited the discussion held at CampUS, EMF's alumni discussion forum, which in a long discussion the previous day, emphasized the pressure that is being unloaded on the corporate sector in terms of demands not only for action but also for transparency and "accounting for sustainability." The CEOs' responses are complementary. Cinzia Tagliabue is convinced that Italian companies have realized that it is necessary to become more sustainable, have achieved important results in the environmental field, and are about to increase their effort on the social side. Asset managers have an important role in this respect, although they are not helped by regulation and taxonomies that are still rather vague in terms of operational implications.

Saverio Perissinotto agreed that the industry has responsibilities, but at the same time, he sees the risk that regulations turn the focus on the part of asset managers into a "tick the box" style bureaucratic procedure that is difficult for corporations and society as a whole to understand. Meanwhile, Claudio Scardovi mentioned "sustainable sustainability", recalling the responsibility of the public sector and policymakers through taxes and incentives and recognizing asset management's fundamental role in guiding the information process.

Sandro Pierri started from the complexity of transformation and highlighted the importance of everyone's contribution: financial institutions must maintain their fiduciary role towards savers, and ESG indicators can be useful to contain portfolio risks without necessarily diminishing returns, as demonstrated by the good commercial performance of sustainable products that have been requested by end clients even in 2022 in a context of generalized weakness in asset management. Sustainability is an opportunity for new analysis carried out on the basis of alternative data, recalling a recently completed acquisition of a company that uses satellite imagery to measure CO2 emissions.

Asset management actions on sustainability

What are the most relevant actions of asset management in terms of sustainability, in addition to the enormous work done in stock selection and engagement with companies in the portfolio? Saverio Perissinotto highlighted the relevance of financial education in a country of big savers, while recalling the importance of advice from distributors who can help improve asset allocation.

Sandro Pierri noted how there has already been an improvement in savers' reaction to crises, thanks both to financial education and the more active and aware role of consulting. Claudio Scardovi recalled the enormous opportunities present in Italy from the private market perspective, both in real estate and in the corporate sector: financial intermediaries must help final investors to seize these opportunities despite a risk aversion and illiquidity that remain very high.

Cinzia Tagliabue concluded with the role of diversity. Asset managers and financial advisors have huge opportunities to help women and young people make active and informed financial choices and to allow women equal career opportunities, which are particularly needed in an industry where women reach top management positions only 17 percent of the time.

Advice for the participants of the Executive Master in Finance

What advice can you give participants? For Cinzia Tagliabue there is a need to continue to prepare for working in a complex world, suggesting the need for continuous improvement in soft skills, such as the ability and willingness to work with others. Saverio Perissinotto suggested the ability to see the glass half full by pursuing the opportunities that emerge in complex situations and to pursue a unique value proposition in order to be distinctive and attractive from a company's perspective, while always maintaining curiosity about the world as a whole and passion for one's work and life in the company.

Claudio Scardovi advocated the importance of values that must be shared within the corporate culture, an element also emphasized by Sandro Pierri whose company considers values an essential element in hiring new resources who must also demonstrate passion and determination. The wide-ranging debate that arose with the participants present in the classroom is the best testimony to the training effectiveness of a meeting that stemmed from an idea that pervades all Executive Master in Finance activities: active learning with continuous discussion among managers of all ages, industries and specializations.

Watch the video of the LIVE webcast of the EMF CEO Forum link

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