Saker Nusseibeh (SN): When we launched it there was I think it’s fair to say – and quite rightly – some scepticism from the press about whether it’s useful, what it was saying, and that it sounds gimmicky – the 300 name got a few eyebrows raised [the club is named after the 300 Spartans who held off the Persians in the Battle of Thermopylae]. We always thought that if we were to provide the right content and the right thought leadership then others could change the industry. That’s the link to the 300 Club because Leonidas never thought he’d stop the Persians, he just thought that if he would stand then the other Greeks would stop the Persians, which is what happened. The second
element was this was never intended to be a trade or industry association.
So you’re not going to be lobbying government any time soon?
SN: No, this was always a kind of quasi think-tank and therefore the membership is from the asset owners or asset managers and, as Stefan says, we’re now looking at regulators.
How have you seen the industry change over the past six years?
SD: Six years ago would you have predicted the meteoric rise of iShares in Blackrock? Six years ago, would you have predicted that asset managers generally, but especially some parts of the equity management industry, would have underperformed so poorly? Probably not. I think the open secret right now is that a lot of active managers have performed extremely poorly since 2008. Has the asset management industry changed a lot in response? Well, I’m not so sure personally. I still meet a lot of people saying that passive investments are the death of the industry, but the industry doesn’t seem very dead to me. In fact, I think passive investments are enormously empowering for the industry, especially for asset owners.
One of the challenges the industry needs to address is the apparent stickiness of asset management margins in an otherwise “competitive marketplace”. So, I think we’re getting to the stage where the industry is starting to ask itself some important questions.
SN: Index funds started in 1976 with Bogle and Vanguard and in 1985 Hermes launched its first index fund internally. But now it’s completely well established and what it highlights about the asset management industry is the proposition of the business model as a provider. Which is it’s a business that’s built on scale ultimately, on high margins, on high AUMs, and yet theoretically whether you believe it exists or not, selling something which has to be very rare. But the idea of it is flawed. It’s as if I say to you, “We are going to produce a bunch of very unique antique pieces of art and then sell them in Tesco’s.” I mean, sorry, how does that work?
I also think the ripple effects of 2008 have yet to play through so the vast majority of active managers have failed but maintained the margin. But although people have talked about the failure of 2008 they haven’t thought about profoundly why it led to failure and that’s to do with how you view the market and normalisation and the interaction of financial assets. And so it is inevitable that the industry eventually morphs into being primarily an index industry.
But in my view it has to achieve that while at the same time morphing into a stewardship industry because the reality is that the $76trn of savings worldwide control the rest of the capital markets. And unless the asset owners, which are the coalminers, the BT workers, the ordinary citizens of California, have some say in controlling these corporations that control their life they are going to live in a world which is shaped by people that don’t listen to them even though they’re paying for it themselves. I mean this is the unspoken bit about the modern economic model, right?
