Fund managers around the world are facing a major shake-out, according to one of the world’s biggest financial services groups, Frank Russell.
Worldwide head of policy and research at the US-headquartered group, Andy Turner, says those fund managers that don’t want to change or are too slow too change will die out.
“We are already seeing the first signs of this shake-out in Europe,” Turner told delegates at yesterday’s IFSA conference.
“There are companies outside of the financial services industry that do not carry the kind of baggage that investment managers carry. These guys are not worried about cannibalising existing business and they will happily cannibalise yours.”
Turner argues that the transition from an industrial economy to an information economy has fundamentally changes the way companies should be valued by fund managers.
“In the industrial age, value was with capital, now the value is with the quality of information. That is why valuation methods such as book to price are losing relevance,” he says.
“The value for Amazon, for example, is not in the margins they receive from selling books to customers but from the quality of the information they have on their customers.”
Turner predicts that within twenty years, the investment management industry will have to grapple with yet another paradigm shift – the shift from the information economy to the so-called “bio-economy”. In the bio-economy, valuations of companies will be subject to their contribution to health and long lives.
The paradigm shift from industrial economy to information economy has been the driver behind the dominance of growth stocks in the past five years in the US. It has also seen shares outperform bonds with little difference in risk, Turner says.
“But when you look at the figures over the past 20 years or longer, you realise this is an anomaly. In fact, if you based your asset allocation decisions on performance figures of the past decades, you would have got it wrong,” he says.
