Bespoke investment solutions are the answer for businesses buffeted from all sides.
The investment world has been hit by a perfect storm of problems. Regulatory changes are coming thick and fast, while inflation is rising – an issue for companies such as insurers – as are cyber risks. And as scrutiny from outside and inside companies increases, the risks of getting a step wrong have become much higher.
Being caught flat-footed by regulatory changes and crackdowns, an errant decision to invest in a company that turns out to have issues, or overlooking your ESG credentials can be significant. For decades, investors have relied on providing clients solutions at scale – but the economics of this can mean investment managers create additional and collective risks for their clients.
Each client that has an identikit investment solution is exposed to the risk of a single investment decision compromising all clients in the same strategy. Tailored investment products, designed specifically for a client’s needs – and adaptable to their changing circumstances – are the way forward. And London & Capital is at the forefront of the boutique investment solution. “Unless you’re an insurer of a certain size, you’re not going to get any tailored approach or service from a large asset manager, whereas the benefit of engaging a small asset manager as a smaller client is you’re a bigger fish,” says Kate Miller, partner at the firm and head of
its institutional business.
London & Capital is a boutique, privately-owned asset manager that deals with three key types of client: ultra-high-net-worth individuals, usually with complex financial situations; Americans in the UK; and institutions
– including a focus on those with liabilities, such as insurers and intergovernmental agencies.
It’s those latter clients that Miller works closely with and has across her more than 25 years in the industry.
“Rather than a client coming to us and saying: ‘I want you to do this for me,’ we work for those small to medium-sized institutional investors who are looking for advice,” she says. “We’re a consultant-led asset manager.” By looking at a business’ cashflow, broader industry issues, regulatory regimes, capital structure and availability of capital – and talking to the board about their goals and aims –we help clients develop an investment strategy that best meets their needs.
For insurers, which Miller has helped support throughout her career, the challenges are more acute than ever.
As the insurance market hardens and new products are launched to cover previously unforeseen insurance challenges, the market is developing so quickly that it’s difficult for insurers to stay on top of each key internal function, including investments.
Regulatory changes are piling up: in the UK and EU, Solvency II and Brexit are colliding in a way that forces insurers to think twice about how they’ve set up their businesses. In the Caribbean, BEPS and Economic Substance are coinciding with the global minimum tax regime. And that’s before you even consider the IFRS Standards 9 and 17 making significant changes to how companies report data and its effect on profit and loss.
“Regulatory changes are constantly going on at the moment,” says Miller. “It’s been quite a whirlwind.” In Europe, the ongoing negative yields environment creates a real problem for insurers, which hold the majority of their assets in investment-grade, fixed interest assets, companies are paying to hold their money. Because of that, insurers need investment advice from insurance experts, and they need their money to work harder – the old way of doing things doesn’t cut it. “The traditional asset manager is really a product seller for the smaller institutions,” says Miller.
Because London & Capital is so embedded in that investment decision with their clients, as change comes about in the underwriting, economic and regulatory landscape, the company can adjust the portfolio to meet
changing circumstances. It provides a consultancy and asset management service combined, saving the double-whammy of fees that can shave five or more basis points off what can be an already anaemic return from basic, off the-shelf product. “Having this overlay on the front, where a team of experts come in, see
what you need to do, advise and lead, is where we set ourselves apart,” says Miller. “It’s not common.”
London & Capital’s experts integrate with clients’ pre-existing businesses and teams, having constant conversations at a board, committee and finance director level to ascertain where a business is and where it’s going, and to develop a unique investment profile based on needs. “It’s about defining the specifics that
make the business run,” explains Miller. “Do you need your money to just sit there being safe? Or do you need a 3% or 4% return on investment? Do you need something that pursues profit primarily, or do you have shareholder needs to meet around ESG that require careful involvement in the markets?” By having those deep conversations and drilling down into what a business needs and wants – and what it absolutely cannot do – London & Capital are able not just to help clients achieve the returns required, help them manage and govern the ever growing list of things that can cause reputational risk.
“The benefit of creating a bespoke portfolio is you can talk to a client and say: ‘What are you doing? Is there a
regulatory push? Is it your clients that you’re appealing to? What is the sort of demographic who are looking for this? Is there something in the business we need to be aware of to avoid correlations between assets and liabilities? For instance, if you’re a medical insurer, investing in tobacco is a nonstarter,” says Miller. London & Capital finds that it is better if that comes out of conversations, rather than diktat and prioritises working with businesses, rather than offering them prepacked solutions.
The firm is also conscious that clients are busy and require a different style of reporting than out-of-the box
answers. “You’re not going to sift through a 60-page valuation and figure out where your exposures are,”
says Miller. Instead, the company clearly establishes the issues and what individual readers’ roles and responsibilities are. It’s all in aid of working towards the same goal: helping firms navigate tricky times in the best possible way. “We’re not just an asset manager,” says Miller. “We like to think of ourselves as an outsourced CIO.”
First published in Raconteur on 18th December 2021. To read the full report click here.
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