Geopolitical risk is fund managers' top concern for 2018, says IMAS survey

GEOPOLITICAL risks rank the highest among fund managers' concerns in 2018, a survey by the Investment Management Association of Singapore (IMAS) has found.

The second top concern was further interest rate hikes, followed by rising uncertainty in US politics. The survey of 55 firms was conducted last December.

IMAS chairman Nicholas Hadow said that the latest survey reflected a different set of challenges from markets. "The more everyday economic concerns have given way to worries about the state of global politics; the rise of populism, income inequality and even war ... It is no surprise, given the broad uncertainty, that we are now seeing more interest in multi-asset strategies from investors seeking diversification in their portfolios."

The top three strategies expected to grow in popularity this year are multi-asset (53 per cent), ESG-focused (39 per cent) and absolute return (35 per cent) strategies. Multi-asset is a dynamic asset allocation strategy where manager is able to invest in a variety of assets including alternative investments. It has raised substantial sums over the past two to three years, as it is frequently positioned with an income objective. ESG (environmental, social, governance) funds are those where screening for ESG factors is embedded into the investment process. This discipline is driven by client demand, particularly among institutions, and is seen as an effective risk-management strategy.

Half of respondents cite margin compression due to increasing competition as the biggest threat to growth over the next 12 months, followed by the risk of business disruption due to new financial technologies (39 per cent). The top three factors expected to have the greatest impact on fund managers' businesses over the next 12 months are rising business and compliance costs; the emergence of new distribution channels and technologies; and increasing regulatory obligations.

More than 57 per cent of respondents cite the rise of fintech in fund distribution channels as the top growth driver over the next three years. This is followed by improving performance and assets under management (46 per cent) and demand for lower cost products (44 per cent).