Spring Capital founder and director Malcolm Arthur discusses where the firm is anticipating demand from wealth managers, ‘concise, relevant and continual’ client communications and how a blockchain wallet could make buying and selling funds so much easier
Where – and why – are you anticipating demand or fund flows from UK-based wealth managers and their clients over the next 12 months?
I am optimistic about two things regarding fund flows. First, I believe we are nearing the peak of passive investing and, for those who work with truly active managers, there is an opportunity for them to excel – provided they can outperform. Second, I anticipate that investors will gradually reconsider the extent of their exposure to US equities – particularly if the US dollar continues to weaken against sterling.
I sincerely hope that a portion of the flow returns to UK equities, many of which appear to be attractively valued. Without buyers entering the UK market, however, these valuations may remain low for a sustained period. Overall, my expectation is for increased flows into non-US actively managed equity funds.
How are you planning to address and serve that interest?
We do not plan to launch anything new and will focus on what we already offer to the discretionary market with our range of funds from the small, carefully selected boutiques we have elected to partner with. These cover most equity asset classes, from global to Japan, UK and Europe, and emerging markets. What we do not have is any standalone US equity funds.
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?
I sense that European investors, particularly on the institutional side, tend to do their own asset allocation rather than using global funds. Wealth managers also prefer to pick funds rather than choosing their own stocks in Europe. This is in stark contrast to the UK where some of the larger wealth managers are doing their own stock-picking in a drive to keep costs to the client to a minimum.
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?
Although investor demand is clearly growing in this space, I believe it is crucial for investors to maintain appropriate time horizons when investing in private assets and to ensure the structure and liquidity profile align with the underlying investments. The challenges faced by open-ended direct property funds in the past highlight the potential problems that could arise in the future.
A prevailing narrative suggests private assets are the ultimate solution for achieving enhanced returns and, while this might well be true, it holds only if executed properly. The valuation of private equity and debt can sometimes lack transparency, so investors must exercise caution to avoid products that are neither accurately nor fairly valued – especially in the realm of private debt.
‘ESG is dead – long live ESG 2.0’ – your thoughts as a distributor, please?
ESG is most certainly not dead, but it was arguably overhyped by some active managers as a way of differentiating themselves from passive. In my view, a good ESG process is simply good fund management and embraces practices a lot of managers were already committed to.
That is because they have always needed to be conscious of all the risks a company faces, making sure the companies they hold are being well-managed. The fact another acronym developed and became mainstream was sensible. ESG will continue to drive companies to improve – and that has to be a good thing.
What drives your approach to client communication? And is there a case for focusing on attracting the ‘right’ type of client?
We are always looking for ways of improving our communication with clients. The challenge is that clients are absolutely inundated with emails and calls from fund managers, so whatever goes out needs to be either easy to engage with or relevant to that client.
We appreciate this challenge so have developed something recently, which is concise, relevant and continual – enabling clients to better understand the thinking of the fund manager and informing them as to what is going on in the underlying portfolio.
To my mind, the ‘right’ kind of client is the one who takes a reasonably long-term view and does not get spooked by a bit of shorter-term underperformance – so yes, that should definitely be an area of focus.
Outside of work, what is the strangest thing you have ever seen or done?
I remember travelling in India many years ago; I was walking along the streets of what is now called Kolkata and saw a man with his head buried in the pavement as a way of begging for money! Closer to home, setting up an independent distribution firm after only eight years of industry experience, and just after my first child was born, was not necessarily strange, but it was definitely crazy!
May we have two book recommendations, please – ideally, one with an investment connection?
I genuinely have not read a book for many years, although I do listen to a few audiobooks every now and then. I have listened to both books about Neil Woodford’s rise and fall. I am not sure that either tells the real story.
Gazing into your crystal ball, what does the asset management sector look like 10 years from now?
I believe that the overall size of the industry will grow as more and more people take control of their own pension pots, so the outlook feels positive. I believe and hope that the buying and selling of funds will become significantly easier with the advent of a form of blockchain wallet, where all the ‘Know your Client’ work has already been done and all you need to provide to the transfer agent or the administrator is your wallet number.
It feels like the advent of active ETFs is more about the ease of trading than anything else, so this would change the need for these. Additionally, I think more active funds will move to offer low fixed investment management fees – but with a performance fee for the outperformance of the index as a way of competing on costs with passive – and so will get paid for alpha generation.
“I believe we are nearing the peak of passive investing and, for those who work with truly active managers, there is an opportunity for them to excel.
