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2 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-1 Apr-1 Jul-1 Oct-1 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Volume of coverage Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-1 May-1 Sep-1 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Volume of coverage ASSET MANAGEMENT REPORT 15 AN INDUSTRY IN THE SPOTLIGHT: An outlook for asset management in was a defining year for the asset management industry, both in its own right and as a precursor of things to come. Significant market movements, updates in regulation and changes in attitudes forced the industry to consider its position and how it can best meet the needs of end audiences under increasing public scrutiny. why their portfolio positioning differs from Government guidelines Throughout, all these events were captured by the media indeed, it is analysis of the press coverage of the asset management industry that can perhaps provide one of the clearest insights into what is likely to happen in 15. With this in mind, JPES Partners has conducted extensive research across more than 5 English-speaking media outlets. The aim is to identify the main themes recently trending upwards in the media in terms of volume of coverage which we believe will act as a guide to those topics most likely to influence agendas in the coming year and to which asset managers will need to respond proactively to in order to protect and develop their businesses. Our findings highlighted the following themes: Active vs. passive has evolved more purely into a debate on the value of active management Smart beta strategies as they mature and proliferate increasingly have to justify themselves Defined contribution is a growing force yet asset managers are slow to respond with regard to providing a viable choice of investment options Fiduciary management is established but broader accountability issues are being raised Engagement on the broader role of asset management is crucial as scrutiny grows NO LONGER SIMPLY ACTIVE VS. PASSIVE The traditional active/passive debate is no more. Events have evolved significantly in the last year, in no small part due to the UK Government Local Authority Pension Scheme (LGPS) consultation which recommended pension funds use passive vehicles to gain exposure to listed assets. Media coverage of Active Share, Jan 1 Oct 14 (Source: Meltwater News) What the LGPS debate has done however is significantly increase scrutiny on the active management space and, in particular, how investors analyse the performance of their managers. The most prominent measure to feature so far is that of active share, which has gained rising prominence in the press over the last year (as illustrated above). Moreover, the media has taken an increasingly critical stance against closet indexers employing active management methods but failing to deliver sufficient performance to justify fees. This is a focus that will run and run, creating greater pressure on active managers to justify their existence or risk losing market share to passive alternatives. DEFINING SMART BETA The rise of smart beta is among the most notable trends in the asset management industry, coming from nowhere to be one of the most talked about themes in the media (as shown below), owing to its perceived ability to be all things to all people, and in particular challenging the efficiency of active management However many institutional investors have disputed these recommendations, publically supporting their active managers and advocating at least a combination of active and passive approaches to secure the best possible riskadjusted returns. The National Association of Pension Funds (NAPF) has expanded these views further, arguing that pension schemes should either comply or explain 1 5 Media coverage of Smart Beta, Jan 1 Oct 14 (Source: Meltwater News)

3 Volume of coverage ASSET MANAGEMENT REPORT 15 It is perhaps a curse of popularity that the more in vogue something is, the greater scrutiny it becomes subject to. And, having benefited from investors search for performance and low fees, smart beta now finds itself being thoroughly investigated by the media. Two particular criticisms have arisen: that smart beta strategies have become too complex and opaque, which is a crucial issue for providers to address in the post financial crisis era where transparency has become paramount. Perhaps more importantly, there are also questions being raised about the credentials of smart beta, with prominent commentators such as economist Burton Malkiel arguing that smart beta portfolios are more a statement to smart marketing rather than smart investing. 1 Scrutiny of the space will be ongoing and providers will need to brace themselves for further questions to match increasing inflows, particularly if traditional cap-weighted indices begin to relatively perform again. The challenge to truly define smart beta and its place in portfolios is on. CONTINUING THE ROAD TO DC The trend towards defined contribution (DC) is firmly embedded, spurred on again recently by auto-enrolment. Indeed, some investment consultants expect DC to outstrip defined benefit (DB) plans by as early as. The trend towards DC has resulted in much greater attention from both the media and government in particular, new reforms such as the introduction of a.75% charge cap to DC default funds and the proposed introduction of Collective DC pension schemes (CDC) have garnered significant media interest. Greater attention on DC will inevitably impact on asset managers with sharp spikes in media coverage evident when new reforms are announced. Providers will need to clearly explain how they will service a DC world in light of charge caps preventing investors from accessing more expensive active managers (raising questions over managers ability to innovate) and CDC impacting how pension schemes allocate assets. These are questions for which the asset management industry has perhaps had too few answers to date. CHALLENGING FIDUCIARY MANAGEMENT MODELS With over 5 mandates now in place in 14 (an increase of 47%), fiduciary management is now firmly ingrained within the UK institutional market; this has been reflected in the press, with higher volumes of coverage compared to even two years ago. As a result, coverage of fiduciary management has moved on from justification of its existence to a greater focus on how fiduciary management operates, how managers are appointed and its overall value to pension funds. An analysis of articles over the last two years alone reveals a significant increase in the extent to which the media is focusing on the concept of fiduciary management oversight, with a number of commentators challenging providers to explain their approach. This upward trend in coverage is likely to continue as the fiduciary management space grows; providers will need to find answers to potentially challenging questions around the overall workings of the fiduciary management process, whether such models are sufficiently transparent and if such support genuinely adds value to scheme governance Media coverage of fiduciary management oversight, Jan 13 Oct 14 (source: Meltwater News) SUMMARY: ENGAGEMENT WILL BE CRUCIAL The asset management industry is now headline news, with the media casting an increasingly critical eye on the sector in a way that was not the case even a few years ago. This interest has been matched by greater scrutiny from government bodies and regulators, particularly from a European perspective, with a host of new policies set to be debated in order to mitigate the perceived systemic risk posted by the asset management industry. If recent times have been the era of banking regulation, it is fair to say the coming years will see something similar for asset managers. 1 Sophia Grene, FTfm: Smart beta is eating active managers lunch (16 November 14) 14 KPMG UK Fiduciary Management Market Survey (November 14)

4 Volume of coverage ASSET MANAGEMENT REPORT Media coverage of asset management issues, Jan 13 Oct 14 (Source: Meltwater News) Transparency 49 Systemic risk 119 ESG or SRI 179 Remuneration 16 Fees 473 Regulation 843 Accountability 7 Breakdown of asset management issues coverage by theme, Jan 13 Oct 14 (Source: Meltwater News) The asset management industry has historically been very good at avoiding debates about its own role. Those days are now gone. In a new era of accountability and against the backdrop of a looming savings and retirement crisis, managers will need to come out of the shadows 3, engage on some of these issues in order to prove their worth and reassure dissenters of their broader influence in the economy and society as a whole. It may be a challenging twelve months and beyond for those who do not do so. HOW WE CONDUCTED THE RESEARCH JPES Partners initially identified some topics that had featured frequently in leading investment, pensions and asset management industry titles since the beginning of 14. These titles included: Financial Times; FTfm; Wall St Journal Europe; The Economist; Citywire; Reuters; Bloomberg; CNBC; City AM, The Times; Daily Telegraph; The Guardian; The Independent; Financial News; Investment & Pensions Europe; Professional Pensions; Pensions Expert; Pensions & Investments; Portfolio Institutional; Pensions Age; European Pensions; Pensions Insight; Engaged Investor; MandateWire; Institutional Asset Manager; Global Investor; Global Money Management; Pension Funds Online; Pensions World; PlanSponsor Europe; Funds Europe; Professional Wealth Management; Investment Europe; Investment Week; Fund Strategy; Ignites Europe; WealthBriefing; TheWealthNet; FT Money; Investment Adviser; FT Adviser; Money Management; Money Marketing; Fund Web; IFA Magazine; Wealth Adviser; Investment Europe; Wealth Net; WealthBriefing; Portfolio Adviser; Family Wealth Report Using Meltwater News, a leading media database and analytics tool, we reviewed coverage for each topic and prioritised them based on which themes were trending upwards (i.e. increasing in prominence in the media relative to past coverage totals) most significantly and therefore were most likely to dominate the news agenda in the year ahead. Ranked in order, we subsequently reviewed the top five themes in detail, looking at media sentiment towards these topics to provide indications as to how the asset management industry will need to position itself in response going forward. For more information, please contact: Alex Henderson, Client Director [email protected] Matt Rogers, Client Director [email protected] 3 Gillian Tett, Financial Times: Asset managers told to come out of the shadows (8 November 13)

5 JPES Partners 6 Snow Hill London, EC1A AY t +44 () 7 78 e [email protected]