By Nicolas Milette, President and CEO, National Bank Trust
The institutional trust services sector was already going through a transformation before COVID-19. I believe that this pandemic will expedite the changes that were already underway. Here are the main trends that our industry should internalize right away.
The aging population, government debt on the rise, and low interest rates – not to mention the negative effects of the pandemic – are all factors that may exert downward pressure on future returns. Whether we’re talking about retirement funds or funeral service clients, for example, the current situation affects all institutional services clients.
Most of them have portfolios with a significant amount of fixed-interest securities accounting for 30% to 40% of their assets, sometimes even more. With interest rates likely to remain low for quite a while, our clients are turning more and more towards new asset classes to boost their returns while minimizing risk.
Less traditional assets like infrastructure, land or even woodlots, for example, are slowly appearing in the portfolios of institutional investors, even those who were traditionally more conservative. For many, this asset class is a way to attain stability and earn recurring revenue.
In my opinion, the composition of people’s portfolios will continue to evolve in the next few years in order to meet the participants’ requirements and commitments.
About 10 or 15 years ago, some more seasoned institutional investors asked to avoid investing in tobacco, gambling, weapons or fossil fuel. Nowadays, responsible investing has changed; it takes heed of all facets of a business and its relationship with society.
Actions related to environmental, social and governance (ESG) criteria are crucial to a business’s well-being and will inevitably affect their financial performance. In particular, we’ve seen that criteria linked to diversity and inclusion are increasingly important to investors, so these are values that must be conveyed to organizations’ executives.
For businesses, managing ESG soundly will bring many positive effects to their financial performance but also to our society, because it will attract the best talent as a result. Making diversity and inclusion a priority not only at the executive level but also within the entire organization leads to a synergy of skills, perspectives and approaches. Given the scarcity in qualified labour, organizations who behave responsibly become employers that are highly sought after. Having diverse teams also allows our clients to see themselves in us and connect with us better, because they see commonalities.
Developing tools and analysis models to select businesses that behave responsibly is now crucially important for finding solutions suited to conscientious investors. Better yet, being able to select asset managers who can identify businesses with healthy rules of governance is a skill that we look for in our business partners.
The new reality of responsible investing is no longer just wishful
thinking; it’s here to stay. It’s a kind of prism that helps us find
and analyze businesses that will set themselves apart. Investors
understand that businesses who operate responsibly will probably reap
more generous benefits.
The automation of processes and the progressive implementation of artificial intelligence in portfolio management are triggering a change in the professional profiles people look for. We’re seeing the emergence of multidisciplinary teams consisting of investment experts as well as experts in client experience.
We focus on specialists who can create added value for the client, who try to gain a better understanding of their needs as a whole, and who seek to go above and beyond their expectations. I can look to our knowledge sharing and our best practices when it’s time to discuss cybersecurity, data management or privacy protection, which are challenges that all businesses are currently facing. I’d like to believe that this approach based on a business partnership goes well beyond returns!
Active listening, being proactive, sharing our values, and client experience are now at the heart of our actions. In taking the time to analyze these trends, my forecast for the institutional services sector seems to point towards a positive outlook for our industry. As long as we change too, of course.
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