Nordea Asset Management’s director, UK wholesale distribution Jamie Hayes discusses where the firm is anticipating demand from wealth managers, commends sustainable investors’ good judgement and offers a word of advice on private assets
Where – and why – are you anticipating demand or fund flows from UK-based wealth managers and their clients over the next 12 months?
In response to some industry-wide pressure and dynamics in equity markets, we would first expect investors to continue to move towards solutions that have low levels of active risk – maintaining a high correlation to equity beta, albeit combined with low levels of alpha – through vehicles that offer highly competitive management fee structures. The chief driver is the difficulty the broader active management industry, in aggregate, has faced in light of narrow market leadership over the past three years.
Furthermore, investor surveys – both institutional and wholesale – continually suggest decarbonisation and deglobalisation as key trends clients are prioritising. Looking through the noise, decarbonisation remains a long-term structural trend, and the volume of capital required to facilitate it makes this an attractive area to invest across both public and private assets. In particular, there are certain sectors that have seen capital exit because they are not immediately or instinctively ‘green’ or low-carbon.
We recognise, however, that many businesses that are carbon-intensive today will still be relevant in the future green economy – or even critical to enabling the energy transition. Understanding which of those companies are best placed to command a green premium should provide opportunities for stockpickers.
Deglobalisation – essentially a reversal of the macroeconomic forces, trade policies, supply chains and flow of capital and people that bind countries together – will present both risks and opportunities. We expect investors to take a more focused approach to investing geographically – and a good example could be splitting China out of the traditional emerging market equity allocation.
While investors will continue to seek exposure to fast-growing economies and diversification, China has proven a difficult and unpredictable investment landscape over the past four years. I expect investors to take a stronger view of their exposure to Chinese equity markets and to look to exploit the heterogeneity of the emerging market complex.
How are you planning to address and serve that interest?
At Nordea Asset Management, we are in a fortunate position to have been an early mover – and, therefore, now one of the most experienced investors – in developing solutions that meet each of these areas of demand. We have been managing enhanced index equity strategies for institutional investors in the Nordics since 2009, showing that by using risk premia and identifying trends in the correlation between factors and excess returns, you can deliver consistent and accretive alpha with controlled tracking error. We call these our ‘Beta+’ strategies and manage them to a range of geographic and sector benchmarks.
As one of the first climate investors in public markets, we have a strong reputation for stockpicking and portfolio management in climate leaders through our Global Climate and Environment Fund. We turned that expertise to the transition space in 2022, with the launch of the Global Climate Engagement Fund, which aims to generate alpha by de-risking the fundamentals of these companies through engagement on decarbonisation targets, strategy and capital commitments. We have branded this ‘Climate Investing 2.0’.
Finally, we are one of relatively few asset managers that offer an actively managed emerging market excluding China equity strategy. Over time, the behaviour of Chinese and non-Chinese Asian equity markets are likely to differ more meaningfully and there are many bottom-up opportunities within that divergence for stockpickers to exploit.
Are you seeing a divergence in the demands of UK wealth managers versus, for example, their peers in Europe or on the institutional side in the UK?
Naturally, there are numerous similarities and differences across markets. Looking at the UK investment ecosystem in particular, I see a lot of commonalities in the drive for scale across all investor types. Increased consolidation – in the institutional market, it is happening with Master Trusts and the Local Government Pension Schemes; while in wholesale, there are like-for-like mergers and acquisitions – means a lack of certainty in time horizons and, therefore, the ability to make proactive investment decisions.
Two top-of-mind things for institutional investors that are yet to prove as relevant for wealth clients are the UK government’s push for domestic investment and planning for a world where no transition takes place. Finally, while private market allocations are talking points in both communities, intermediaries have been slower to adopt evergreen structures than institutional investors. I would expect this gap to diminish in the years to come.
“As long as there remains a clear link between ESG/sustainability and long-term value creation, there will remain demand for associated investment strategies.
As a business, how do you define ‘alternative’ and ‘private’ assets, and to what extent should asset managers be looking to service investor demand here?
I see ‘alternatives’ as a broad bucket term encompassing any strategy delivering something other than beta from public markets. Liquid alternatives can be used to deliver asymmetric return profiles to investors – and risk premia, in particular, is a tool Nordea uses to generate these returns.
On the question of investing in private assets, evergreen vehicles are all the rage at the moment. My word of advice here is to work with an asset manager whose evergreen strategy is its flagship vehicle – and the receptacle for its best ideas – rather than with one where it is more of an afterthought.
And, in short, yes – given the broad range of outcomes, if you can employ the skillsets required to get under the hood and undertake proper due-diligence, there are attractive returns to be generated.
‘ESG is dead – long live ESG 2.0’ – your thoughts as a distributor, please?
To paraphrase Mark Twain ‘reports of ESG’s death have been greatly exaggerated’. While flows for Article 8/9 funds have been volatile over the past couple of years, you will find that, if you dig into the data, the biggest outflows are from Article 8 funds with no commitment to sustainable investments as defined under SFDR – in other words, those masquerading as ‘ESG’.
This is to investors’ credit and shows greater scrutiny on their part. This is supported by regulation in Europe and the UK, which has increasingly put pressure on asset managers to put substance to their claims. It is a very welcome move, forcing many large asset managers – for whom ESG has merely been a marketing tool – to move aside. This is helping re-establish trust in the asset management industry.
From a demand perspective, Nordea continues to win mandates from institutional investors – in the UK, Europe and the US – for solutions that reflect their ESG needs, increasingly with embedded decarbonisation pathways. As long as there remains a clear link between ESG/sustainability and long-term value creation, there will remain demand for associated investment strategies.
What drives your approach to client communication? And is there a case for focusing on attracting the ‘right’ type of client?
Simple principles of transparency, speed and clarity. Intermediary clients are inundated with communication and have demanding clients on their side, so our job is to make their lives easier. While I am reticent to consider any particular client ‘right’ or ‘wrong’, we ideally like working with investors who know what they are investing in and understand when a strategy will perform and when it will not.
Outside work, what is the strangest thing you have ever seen or done?
What a difficult question! I am hoping to try ‘via ferrata’ this summer, which looks like great fun. In the absence of any better answer, a colleague suggested I consult ChatGPT, which told me that ‘I watched a man juggle flaming torches, riding a unicycle, whilst reciting Shakespeare in the middle of a public square’. Perhaps I should also try DeepSeek to see what else I can come up with …
May we have two book recommendations, please – ideally, one with an investment connection?
I have always thought Civilisation by Niall Ferguson offers an interesting recipe – mixing science, property rights and competition, among others – for explaining the past 400 or 500 years of Western hegemony. Rather than an investment book that explains valuation methods or an individual philosophy or approach, I think something that considers the behaviour of market participants to be important. Animal Spirits by George Akerlof and Robert Shiller explores this and puts forward a Keynesian case for policymaking in relation to markets.
Lastly, gazing into your crystal ball, what does the asset management sector look like 10 years from now?
The developments we have seen in technology over the past couple of years – particularly in AI – will be felt across the entire asset and wealth management value chain and extend further than mere improvement in operational efficiency and cost reduction.
Taking the investment management function, for example, AI will become critical to working with big or alternative data sets – and consequently to alpha generation. A result of this will be a change to the type of skillsets and profiles that asset managers seek to employ. Most investors, however, will only see this as a number on their monthly statement; more acutely they may feel the impact in their ‘customer experience’ as it relates to distribution and relationship management – chief among them a greater level of insight and more customised experience.
