The FundForum International took place in Monaco from 29 June to 2 July. The independent industry expert and IPE author Markus Hill moderated a panel discussion there again this year. He discussed with decision-makers from family offices about the complex of topics of fund boutiques and due diligence. Before the event, he also moderated a panel discussion on “Fund Management – Man versus Machine” and “Fund Selection for Foundations”. Editor-in-chief Frank Schnattinger talked to him about current topics, which were also increasingly discussed against the background of previous or future events at family offices and asset managers.
IPE Institutional Investment: In July, you had your panel discussion on family offices and due diligence in Monaco. What did you notice most about the discussion this year?
Hill: In addition to the standard topics such as quantitative and qualitative selection process, I found it exciting this year to see how the areas of group decision-making and on-site visits to independent asset managers were also addressed. One of the panelists remarked that one could of course lean out of the window to give even unknown, excellent managers a chance for a “ticket”. However, as a member of a team making selection decisions, one should be aware that one could be taking a career risk in case of an emergency: In the majority of cases, you have to be right in such actions to afford this luxury for decisions under increased risk. The importance of the “house culture” also appeared to be crucial: Are independent decision-makers valued as selectors for independent managers? Is it known about the added value of such employees? A final visit to the manager by the family office was discussed. After going through all the preliminary stages in the selection process, there are cases where even a several-day observation of actors and processes on-site can ultimately be decisive for an investment decision.
IPE Institutional Investment: Shortly before your Monaco appointment, you moderated a panel in Frankfurt on the topic of “Head, gut, or machine? What was the focus of the discussion here?
Hill: The consensus in the panel of product specialists and fund of funds managers was that people do not believe in the victory of machines over people in the foreseeable future. Topics such as “Fintech hype” and Robo Advisory are being closely followed by fund managers. In the end, it seems that humans make final decisions in portfolio management or provide the content for programming and optimization and take over the monitoring function. Topics such as active management versus passive management were also intensively discussed by the participants. As is so often the case with many of these discussions, one comes to the conclusion: You cannot passively pursue passive management. The decision to be passive is also actively made. At the product level, including in fund of funds management, this means at some point in time, a manager decides on a certain allocation at one or more points in time. Even when selecting rule-based systems, it is the human being who determines in which direction such systems intervene or how such systems are developed further.
IPE Institutional Investment: Thank you for the brief snapshot regarding these two fund selector panels. What topics are you currently working on? What developments are you following more intensively?
Hill: For a long time now, I have been working more intensively on the topic of “Value Investing and fund boutiques” as part of a project. The current round of the 2nd Frankfurt Funds Boutique Panel also partly supports the formation of opinion in this area. This September, a series of lectures with Prof. Dr. J. Carlos Jarillo will once again provide an opportunity to exchange ideas on these topics and the subject of corporate strategy and competitive advantage. As in Frankfurt this May, there will again be an opportunity to hold a critical discussion with fund selectors. The subject area is by no means only a topic for the investment process for liquid products. During various technical discussions on the topics addressed, it seemed interesting to note that many investors – regardless of the product packaging – often deal with similar questions: Is the “corporate concept” of investing in companies, stocks, or funds correct? How vulnerable are concepts to attack by competitors? What are the real barriers to prevent competitors from entering the market in the long term? Remarkably, some of these aspects are often found in the selection of fund managers: How quickly can a fund concept be copied? What constitutes the elementary, unique competitive advantage of an independent asset manager? What are the risks associated with concepts and players? Open-end funds, private equity, and direct investments – all areas where similar approaches lend themselves to an in-depth discussion of these fields.
IPE Institutional Investment: In addition to fund boutiques and manager selection, you will deal with topics such as real assets, direct investments, and sustainability. Family offices, foundations, and many other traditional investors are closely observing these market segments. How do you see developments in this area?
Hill: These areas cover a very wide area. Against the background of a panel at the Goethe University in Frankfurt in October of this year, I am also increasingly concerned with the topic of impact investing and sustainability concepts in investments. The event is organized by Professor Dr. Rainer Klump and Dr. Manuel Wörsdörfer, in cooperation with Karen Wendt (Responsible Investment Banking). It seems interesting to me that there is an increasing openness for concepts in the context of investor discussions, at least the topic of sustainability seems to be moving in large steps away from the pure “fashion corner” – many people are talking about even less investing concretely. Trends in the market, including regulation and investment distress, seem to bring productive pressure to the discussion. One can only hope that this welcome trend will continue. Detached from the topics mentioned above, one thing seems to be positive for the asset management industry in 2015 – the strong inflow of funds is encouraging and the current stock market crisis does not appear to be threatening, at least not at present. The trend in the industry towards an increased exchange of ideas on content – as mentioned above – is continuing. Against this background, one can only look forward to new opportunities for discussion with industry colleagues. Frankfurt is close to my heart. Therefore, I am looking forward to the upcoming BVI Asset Management Conference on October 1 in Frankfurt, one day before the above-mentioned event at Goethe University. All of them are opportunities for a professional exchange of ideas, where not so many products but rather developments in industries will be discussed across the board.
IPE Institutional Investment: Mr. Hill, thank you very much for the interview.