Good investment management is vital in a world of cycles

The asset management industry is experiencing volatility but good investment management remains critical, according to partner and leader of investment management for KPMG in Ireland, Jorge Fernandez Revilla.

“Environmental and social concerns are continuing to influence the asset management industry. Financing sustainable recovery and adjusting for an increasingly digital world are now of paramount importance to Ireland,” he said.

Revilla said that there is uncertainty with a mixed global outlook, tighter European Central Bank (ECB) monetary policy, higher levels of inflation and service/infrastructure demand challenges.

“Inflation has been more persistent than had been anticipated and the expected further monetary policy tightening from the ECB could cause issues for homeowners, who will see mortgage and loan repayments increase,” he said.

Revilla added that while there is volatility in the space, investment management is vital: a well-diversified portfolio is like a cash flow buffer that can help partially offset volatile or stagnant asset prices.

“There will always be economic cycles,” said Revilla. “The crucial thing is that these can be overcome with different portfolio compositions. The investment management industry will pivot for now and then, over time, people will return to riskier investments.”

He said that KPMG’s clients are mixed in their appetites for risk and look at a diverse range of investment opportunities. “Some of our clients would look at opportunistic investments in the downturn. Others look at macro hedge funds where they can make more money, or at different asset classes.”

Exchange-traded funds (ETFs) are becoming more and more popular as they are seen as a more stable option during inflationary times. An ETF offers the advantages of an investment fund, such as low costs and broad diversification together, with characteristics more commonly associated with equities, such as access to real time pricing and trading.

“In the whole, our clients are now positioning themselves as they know there are going to be opportunities, regardless of a major downturn occurring here in Ireland.”

Revilla said that Ireland is very well positioned to weather a downturn. “We invest in talent, in subjects like maths, and in the younger generations. We sit quite favourably in the global chain of investment management. I am optimistic, but we are a small country. This makes it even more vital that we continue to invest in technology and in talent.”

Over the last decade, the cryptocurrency asset class has become more and more important on a global scale. Revilla welcomes the regulation of digital assets in the crypto industry as it will result in wider adoption, which is key to the success of any asset class.

“I am an early adapter myself. Digital assets are going to become mainstream and become even more critical going forward. If you look at Germany now, you will see that it is a very positive story.”

Germany has approved new legislation allowing more than 4,000 institutional investment funds to invest billions in crypto assets. A law now allows the so-called Spezialfonds (special funds) with fixed investment rules to access digital assets. The firms are able to allocate as much as 20 per cent of their portfolios in crypto assets.

“The challenge for Ireland is that the investment ecosystem as a whole needs to adopt digital assets. For this to happen smoothly we need good use of technology. We need to move the dial so that digital assets become mainstream assets and that we have the tech, the lawyers and the tax advisers to back it up.”

Investors, regulators and other stakeholders are becoming increasingly aware of the impact that investment choices have on society and are increasingly demanding that asset managers intensify their efforts to provide insight into ESG credentials of their fund, said Revilla.

“At KPMG we are big supporters of ESG. We put the Environmental, Social and Governance agenda at the heart of everything we do. It is really important that a robust framework is developed here. It will be a huge competitive advantage if brand Ireland is the best brand. This is non-negotiable in my mind,” he said.

“For this to happen, we need to continue to invest healthily in future generations. If we are able to do that and get it right, it will be fundamental to Ireland’s future. This means investing heavily in everything from engineers to doctors. We can’t forget about talent. Talent is something that needs to be nurtured and encouraged.

“If we work on our ESG assets, Ireland will be able to position itself really well and to compete internationally. Asset management is an international game.”