Over the past year, the UK investment industry has gone through an identity crisis.
Nigel Wilson, Group CEO of Legal and General, has said the capitalist model has to justify itself to a “very sceptical audience” while Anne Richards, chief executive of M&G Investments, has called for scorecards to measure how fund managers are investing in assets that benefit society. And just this week, writing in the Telegraph, Keith Skeoch, co-CEO of Standard Life Aberdeen, has said that the finance industry must have sense of purpose.
This sense of transition among the top brass at some of the world’s biggest asset managers has not gone unnoticed at the Investment Association, the trade body which represents UK firms managing over £6.9trn of assets.
“There is a big feeling across the leadership of the industry that we need to do a better job explaining our role and value,” Chris Cummings, chief executive of the Investment Association, tells RI.
Cummings joined the association two years ago following the controversial departure of former CEO Daniel Godfrey, who had advocated greater transparency.
Cummings is speaking at a conference, hosted by the London Business School, where Elizabeth Corley CBE, former CEO of insurer Allianz, talks about the new social impact investing ‘Implementation Taskforce’.
The Taskforce, set up at the request of Prime Minister Theresa May, is the follow up to an advisory group, chaired by Corley, that last year made 53 recommendations on catalysing social impact investing the in UK. Last week, the government announced it would take many of the recommendations made around policy forward.
The Investment Association sat on the advisory group, and is also on the steering committee of the new taskforce. Cummings says its members drove the decision to be involved in the work.
“The first thing I did when I arrived was to take it through a strategic refresh with members. Certain messages come through strongly of course. They wanted technical help and support on the regulatory agenda. So they certainly didn’t want us to move away from the core business. But what shone through very clearly was the sense that the industry should better define its role in society.”
Cummings says he regards this as a sign of growing industry maturity: “Now 75% of UK households use the services of an asset manager because of auto-enrol pensions and more workplace pensions. We are structurally important to the UK economy. When 75% of UK households use your products and services you’d better get used to life on the public square. Politicians are going to be very interested. So are regulators.”Cummings explains that its goes to the heart of the purpose of the industry: “We have always been about helping people prepare for retirement. But that is quite a utility function and what became clear to me with the conversations I had was two things actually. The first one is how our industry is coping with social change and the different expectations that millennials will have with what you will do with their money.”
Along with millennials, Cummings says there is also growing demand from asset owners that their asset managers invest in line with their values and expectations.
“We have reached a tipping point in the industry where every asset manager must be entirely clear about their approach to SRI, how they are doing on corporate governance issues and the fact that actually, as stewards of the economy, we recognise the weight that has been put upon our shoulders.”
Cummings said when Elizabeth Corley approached him about joining the work on social impact investing it was bang on the strategy his members wanted delivered and a way of demonstrating tangible action.
He jokes that the Investment Association has ended up with more action points than any other organisation as a result of the work. “I think it shows how seriously we do take these issues.”
Its actions include mapping out which products are currently available within a social impact investment dimension to understand how the market currently functions. The Investment Association will also work on creating a taxonomy, “so we can share a common language and have a more structured discussion with asset owners and end investors,” says Cummings.
Cummings says it will do this through consultation with regulators, governments and asset managers to get “a taxonomy that everyone buys into”.
He says an original idea of a label for social impact investment products has been let go, for now, after platform providers said they didn’t have the IT do it.
Alongside its work with the social impact investment implementation group, the Investment Association is working on a policy around socially responsible investment. “It is a big subject which social impact investment is a necessary part of,” says Cummings. “We have just formed a new taskforce at the Investment Association to take on this work. I think within 48 hours we had 50 firms wanting to participate. So there is huge member appetite for it. We are working closely with the Treasury and FCA so the policy proposals we come up with will be meaningful to end investors.
“My view is that in a post-Brexit world it is one of the things that the UK must be good at. We can set this as an ambition to be a global hub for SRI funds. I think the UK can do it. It is getting to be a more competitive environment. I know France is particularly keen in this area and there is no reason why the UK can’t be just as worthy.”