Speaker 1 - Very pleased to welcome Chris Chancellor, Vice President, Distribution Insight at Broadridge to the program. Chris, thanks so much for joining me. Really interesting report here. And I understand this is an annual report. So let me kick off by asking what fund buyers/ fund allocators are looking for in funds this year compared to previous years. What's changed?

Speaker 2 - What's changed? Well, this was research in 2022, and what changed from 2021 to 2022 was obviously the market became much more volatile. Interest rates started to move up. So fund selectors were really looking for safety and security and that comes across in a need to get help from the asset managers. So not just give me the right products, but also help me understand what's going on in those products and help me when I have problems. If I'm a fund selector, a private bank or a fund of fund and I have some challenges, I want to get quick responses to those questions. So that service element has become much more important for fund selectors really over the last decade, but especially in the last year.

Speaker 1 - That makes complete sense. When times are tough, you want guidance, you want that service. In terms of fund selectors, what is the the trend in terms of one stop shops versus more specialist funds, whether that be from a regional or local perspective or in terms of sectors and specialty?

Speaker 2 - Yeah. So I think if you think of us fund selectors by list, they probably have 30 different slots on it. They'll use 30 different managers so they'll definitely want some one stop shops up at the top who'll be able to do active/passive, right across the spectrum. But then they definitely go shopping for “Well, let me have some specific groups that are going to be able to do something really interesting.” So if we look at, say, the top ten in Europe, yes, we have the big names at the top that you'd expect like BlackRock and Amundi and so on. But we also have groups in that like Flossbach Von Storch. So not a very well known name, but really liked for its multi-asset specialty and really slotting in some of those portfolios, especially in markets like Germany and Austria. And that's that's that, I think is interesting because it means you aren't you don't just have to be a huge provider to win in asset management. You can do other things as well. You can be a specialist.

Speaker 1 - What about European fund managers versus U.S? How do they stack up?

Speaker 2 - Yeah, I mean, the U.S managers are the most dominant managers globally. You know, they are dominant in Asia, they are dominant in Europe. When you go market by market, if you look at, say, the French market, you'd see a different lineup. But when we look right across Europe and say, well, who's winning across Europe? We definitely see those U.S brands come to the fore. So Fidelity, BlackRock, JP Morgan, right up there. But that's not to say there aren't local strong providers as well. So Amundi particularly strong and Pictet, a really strong brand, you know, built heavily not only in product but also on service. That ability to give a really high touch to investors is really liked from Pictet.

Speaker 1 - I'm not sure if this is within the scope of the survey, but I'm curious within, within the fund management world how fund selectors think about single manager funds versus the pods. And maybe this is more in the hedge fund world and if there is a trend that you could could comment on.

Speaker 2 - I think around that, I think we definitely see, you know, we've seen a shift away from things like star managers over time or less conversation about star managers. But actually I think what fund groups need to consider is they still need those managers to be able to go and talk to their investors. So actually, whilst you don't want to build a star because that can be a bit risky when they go and we've seen that many times, you do need a manager who is known in the press and who is known to investors and is willing and able to go and talk to investors, whether that be physically or more and more often on webcasts, on phone calls and so on.

Speaker 1 - Now, that's interesting and that makes sense. What about green credentials? How is this factoring into fund selectors decision making? And perhaps more importantly, how is it measured? How are they judging a fund's green credentials?

Speaker 2 - So it's it's an area that's in flux, isn't it? Green credentials. So it has become much, much more important for fund selectors. Of all the fund selectors we interview in Europe, the majority are now saying that using ESG funds in certain markets, they're saying that well over 50% of their portfolios are now invested in ESG funds. Of course, what is ESG is probably the probably the tricky question. So I guess last year or two years ago, we had SFDR as a regulation come into Europe with Article eight and Article nine, and we then. With huge flows to go to Article eight and Article nine.”

Obviously, there's been some rolling back of that. Some groups have changed Article nine funds back to Article eight so that the dark green funds back to light to green and that's that's changed. Fund selectors have looked at that and said “Well, now I'm not quite so sure”. But what they do know is “I definitely still want ESG. I want green funds in my portfolio”. What we're seeing the bigger fund selectors do is go and start doing their own analysis of portfolios and say, “Well, we're going to build our own tools because there's lots of tools out there that measure green credentials. They don't all agree we're going to look at those, but we're also going to build our own models of looking at this and make our own decisions about what we think ESG is and is not.

Speaker 1 - Is that sustainable? But it's done in sort of this piecemeal way.

Speaker 2 - I think over over the long term, we will see more of a coalescing around an agreement about what ESG is and what it is and what the different kind of flavors of it. So I think we're still we're still very early days in this. If we go back five years, the fund selectors we talked to, hardly any of them really mentioned ESG. And now it comes up in every single one of our 800 or so interviews we do across Europe. So I think it's it's here to stay, but it will continue to change and we will get to a more sustainable model.

Speaker 1 - Have you measured at all the relationship between ESG credentials and fund performance?

Speaker 2 - No, not particularly. So we're looking much more at the brand here. And what we see on the brand side that I think is interesting is we talked a bit about U.S groups versus European groups. Before you look at an ESG ranking of brands, it's all European groups. So you see right at the top there, you've got Robeco, you've got Nordea, Pictet, BNP doing very well. Liontrust from the UK. It's not the big US names that are taking a little longer to to get to grips with this. That's not to say they're not doing a good job, but they don't have the heritage of some of these European groups that have always had ESG embedded in how they how they operate.

Speaker 1 - It's such an interesting point. And you can take it to the corporates as well that European corporates have long been disadvantaged because of their ESG awareness. But now that that's what investors are looking for and consumers, in many ways it's turning into an advantage. Chris, thank you so much for the insight. Chris Chancellor, Vice President Distribution Insight at Broadridge.