Key drivers for investors in 2023 and beyond

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It was great to have our CEO Jean Hynes join us in Singapore at this year’s Milken Asia Summit 2022. Jean was part of the opening panel on trends in asset management. In my view, three takeaways from her comments are particularly relevant for investors in Asia:

Sustainability is here to stay: We believe it will fundamentally change financial markets within the next 10 – 15 years. Long-term themes, including climate-change mitigation and adaptation, are impacting capital market flows already. And we’ve seen increased calls from clients expecting their asset managers to act as long-term fiduciaries, ensuring that capital markets and the companies invested in are contributing to a sustainable future.
Adaptable technologies will speed gains: It’s clear that integration of technology will be a key driver of success for investors. It’s present in everything we do at Wellington. One of the many ways we use it is to organize, govern, and harness data in service of generating deeper insights for clients. Our technology is evolving constantly and is designed to uncover unfolding and future opportunities around the globe. This helps us spotlight opportunity sets that reflect specific investment goals.
Increased allocations to privates and alternatives will continue: The private market opportunity set continues to evolve rapidly. For example, historically, there were some 200 public companies and 100 private ones in biotech^1. Today, more than 2,000 are private, and perhaps 500 public². This has been a persistent investment opportunity over time on an institutional level, and our retail clients want access to it as well. We expect this to be a big trend for the next decade.

Watch Jean Hynes full panel replay below

The old regime is passing

The Milken Asia Summit had a wide range of panels, and I was fortunate enough to spend time engaging with clients across multiple sessions. An overarching theme was that the market regime of the past 25 years is changing, with persistently higher inflation at the root of this transition. These changes are likely to have profound implications for how we think about asset prices, markets and even our industry.

Higher and more volatile inflation likely will mean larger swings in monetary policy, potentially resulting in shorter economic cycles. Likewise, higher and more volatile discount rates may increase asset price volatility, along with performance dispersion between companies and even countries, all of which should be positive for active management, in my view.

Sustainability is no longer optional

With the energy crisis in Europe and energy prices increasing globally, the sustainability revolution has faced a barrage of scrutiny from investors and politicians this year. Yet the fact remains: climate change will intensify, and future warming is unlikely to reverse. Regardless of inflation, recession or political cycles, increasingly frequent and severe climate events are likely on the horizon. Given the scale and inevitability of the disruption to come, we believe sustainability will prove to be one of history’s defining investment megatrends, alongside industrialization and digitalization.

Moving forward, regulation, fiscal spending, regional innovation and cultural proclivities will all play a role in determining the pace of change for each country. Understanding the interplay between these factors, combined with industry-by-industry expertise on a global scale, will be essential to recognising winners and losers. Sustainability and ESG considerations are an important part of any long-term investment thesis. They have an impact on stock prices and return potential in the long run. As such, we don’t see employing a sustainability lens as concessionary, but as synergistic to the pursuit of investment returns.

Innovation: now more than ever

Innovation was a core theme, both at Milken panels and with clients more broadly. Technology and sustainable investing were key focus topics. Despite the recent underperformance of sectors like tech and fintech, in our view, we shouldn’t lose focus on how digital disruption likely will define returns this coming decade. The recent sell-off isn’t surprising: there was froth if not euphoria in many tech valuations heading into this year, and rising rates lead to a repricing of forward earnings, particularly for high-growth assets.

This could be an opportunity for long-term investors who stay true to their philosophy and process. If anything, we expect an acceleration in digital disruption rather than a pullback. Many of the trends that drove tech dominance over the last decade remain in their relative infancy. Meanwhile, from artificial intelligence and machine learning to robotics, blockchain and 3D printing, emerging technologies are rapidly maturing and will enable more cost-effective implementation of efficiency-driving technologies across sectors.

Here to stay: private equity and alternative investments

It’s interesting to note that investors in privates and alternatives are often the first to devote capital to innovation and sustainability, which, as discussed above, are two other trends solidly established in Asia. We view our commitment to building world-class capabilities in these categories as a long-term investment.

Event replay

Milken Asia Summit panel: Asset management at an inflection point

In this replay from the 2022 Milken Asia Summit, CEO Jean Hynes joins a fascinating discussion with some of the leading figures in asset management to share their perspectives on how asset managers can help clients navigate increasingly complex markets.

¹Health Affairs 2015, “The evolution of biotechnology and its impact on health care” | ²Statista 2017, “Number of biotechnology companies in the United States from 2012 to 2016”

Our approach to sustainable investing

Expert

Scott Geary

Head of Asia-Pacific Client Group

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